mojmir hampl : to be or not to be in the eurozone? an answer from prague speaking points by mr mojmir hampl, vice governor of the czech national bank, at st. antony's college, university of oxford, oxford, 21 may 2018. * * * ladies and gentlemen, good afternoon. first let me thank dr charles enoch for his kind invitation to speak here today. it is really an honour for me. i was thinking for quite some time about what approach to take today. should it be a totally rigorous, perfectly balanced and as - full - of - data - as - possible description of the macro and monetary realities of our country? or should it be more the personal testimony of a policy maker co - responsible for the monetary zone called the czech republic for almost 12 years now? on the advice of my adviser i decided that the second option might be more appropriate. we should listen at least sometimes to our good advisers after all. so, the czech republic is a mid - sized european country of 10. 5 million inhabitants. it entered the eu in 2004 and has no opt - out from euro adoption, so legally we are obliged to join and to make every effort to be there as soon as possible. yet there is basically no major political power in our country pushing for euro adoption at the moment. it is not part of the real political agenda, and we now have a fourth or so government in a row declaring that this issue will be left “ for the next government after the next elections ” – so it is being postponed to political infinity. the anteroom for euro adoption, the erm ii, is not being considered either. this approach has the full backing of the central bank. ten years ago, supporting the euro was a sign of “ good social morals among the better classes ”, whereas today only the brave confess to ardently supporting it. that ’ s how much the mood of the elite and the electorate has changed over the last decade. why is that so? here my eight personal comments come into play. 1. the euro and political union : a stateless monetary union is inherently unstable. a currency is usually a consequence, not a cause, of the establishment of a state. in europe, however, we began to build the “ currency house ” from the roof down, and then in 2008 everyone was very surprised at how the tiles flew off when the first wind appeared. is there a prospect of a political union – a

bank of italy. bank loans to households and firms at the end of 2013 exceeded €1. 4 trillion and 90 per cent of gross domestic product. credit accounts for almost two thirds of firms ’ financial debt. more than one third of households ’ financial wealth is invested in bank deposits and bonds. in recent years the exceptional decline in gdp has undermined the soundness of many firms, increasing their debt - service burden. the repercussions for banks have been very bis central bankers ’ speeches serious : loan losses accumulated since 2008 amount to €130 billion ; those in the past two years have absorbed almost all of banks ’ operating profits. banks have stemmed the deterioration of profitability by curbing costs. between 2008 and 2013 the number of employees in banking was reduced by 30, 000 and 2, 400 branches were closed. the cost - to - income ratio was lowered from 66. 7 to 62. 1 per cent. following the collapse of funding on the international markets in autumn 2011, extensive resort to the eurosystem ’ s three - year refinancing operations enabled italian banks to sustain a volume of lending to the economy that exceeded domestic funding and to meet the future redemption of bonds previously placed in foreign markets. with large - scale purchases of government securities the banks built up resources to withstand new liquidity crises, at a time when the increase in sovereign risk was driving foreign investors away from italian markets. interest income and capital gains on these securities partly offset the heavy losses on loans to households and firms. in mid - 2013, with the return to orderly market conditions, banks began to sell off government debt. the financing of the economy total credit to the italian economy is shrinking. but the aggregate data mask different trends for the various categories of borrower. given the persistent uncertainty about the timing and strength of the recovery, businesses have lowered their demand for credit. the largest firms have increased their recourse to the bond market. in 2013 gross placements by italian issuers were close to €40 billion, almost twice the amount recorded in the years preceding the crisis. credit supply restrictions are hardest on small and medium - sized firms, generally more risky and now especially weakened by the recession. in this setting the funding difficulties of firms with good growth opportunities but no direct access to the capital markets are a cause for concern. in the coming weeks the bank of italy will adopt measures to improve banks ’ liquidity further, thereby facilitating lending to small and medium - sized firms. the range of