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PRAGUE, Dec 21 (Reuters) - The Czech Republic's preparedness for euro entry has worsened due to the economic crisis, an analysis by the central bank and the finance ministry showed on Monday.
The Czech Republic has no euro entry target date and is not expected to set one until 2015 or later as its budget deficits are expected to soar.
The 2009 budget gap is forecast at 6.6 percent of the country's total output, more than double the euro zone 3 percent threshold, after the economic crisis cut tax income and pushed up spending on unemployment benefits and social fees.
There was limited progress an overall economic flexibility, including the labour market and the institutional framework, the analysis said.
The economic crisis worsens the development of public finances and may cause increased volatility in the exchange rate, it added.
"Compared with the last year, the economic preparedness for euro adoption in the Czech Republic has significantly worsened due to the economic crisis," the analysis says.
The document, approved by the government, focuses on the country's overall preparedness to meet the Maastricht euro convergence criteria and the country's real convergence with the euro zone.
The cabinet agreed that there was no point in setting a euro entry target at the moment given the overall state of preparedness.
"The Government agreed with the recommendation of the Ministry of Finance of the Czech Republic and the Czech National Bank not to set a target date for euro area entry yet and not to attempt to enter (pre-euro exchange rate mechanism) ERM II during 2010," the central bank said.
The ERM II exchange rate mechanism is currency grid used as an exchange rate stability test. The euro entry rules call for staying within the grid for at least two years to prove currency stability.
The level of the gross domestic debt, also a criterion, is estimated at 34.5 percent of GDP, comfortably below the euro-zone prescribed 60 percent. But it is expected to rise steeply in following years due to the big deficits and rising debt servicing costs. (Reporting by Jan Lopatka and Jana Mlcochova; Editing by Ron Askew)