Referendum on Euro? Risky “Heart Surgery” on Czech Currency

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Minister of Finance Andrej Babis suggests that adoption of the euro currency should depend more on a dialogue with citizens of the Czech Republic. The election process is obviously not sufficient – he proposes to organize a special referendum. It would not be 100% obligatory for politicians; it would just reveal an opinion of the Czech society. Seems weird, doesn’t it? 

Andrej Babis thinks the elections in 2017 are not enough to communicate standard topics from the political economy area. Therefore, he would like to organize another side battle – a referendum on adopting euro. And the referendum should be tentative. Officials could (or could not) follow the results. I myself strongly disagree with this proposal. And I have three main arguments to support my position.

The first point is clear – costs. The referendum issue is discussed very often, especially when politicians want to move their responsibility on the vox populi. However, no referendum is free of charge, even if you merge it with some other elections (parliamentary, municipal, EU etc.). One election turn (2 days) usually cost 50 million EUR in the Czech Republic. The (non-binding) referendum would probably be cheaper, but definitely not free. Opportunity costs of these taxpayers’ money are too high.

Secondly, the Czech political system is based on a representative democracy. We elect politicians to decide. That is our job. Their business is to make decisions and then to take responsibility in elections. A continuous competition among political parties secures an opinion balance. We cannot implement one tool of direct democracy as a litmus test into the representative democracy system, because we cannot divide elections into two separate actions – the tentative one about euro, and the obligatory one about other topics. If we did so, the whole political system would become a mess.

Last but not least, a decision on changing the Czech monetary paradigm should not be left to people without adequate competences. The issue is not just about whether we will carry euros or crowns in our wallets or whether price tags would “look like in Germany”. The new currency would fundamentally affect the determination of monetary policy. It would take out another part of the core competencies of the Czech National Bank and transfer them to Frankfurt, where the European Central Bank seats. It would eliminate a significant exchange rate channel (weakening or strengthening exchange rate helps the economy to respond to economic shocks). It would also harmonize our monetary policy with countries that have completely different macroeconomic and social characteristics, and so on and so forth. It is such a serious decision that it should be made by people aware of the possible consequences.

Unfortunately, voters are rarely like this. The opinion of someone without relevant knowledge is useless, even if you multiply it 10 million times. Or, would you ask the voters, whether you really need your heart surgery after heart attack? I would have some serious doubts.

Of course, even politicians do not have to have enough competences to decide properly. However, it is the task of voters. We must keep an eye on the political arena and secure it receives only the best pieces, unless we want to take the responsibility in hundreds referendums that might follow.