UPDATE 1-Czechs propose EU deficit cuts, see euro delay

                                
 * Czechs to propose path for EU budget consolidation
                                
 * Czechs see their 2009 budget gap around 4 pct/GDP
                                
 * Budget gaps to delay euro entry to 2014-2015
                                
 
 (Adds quotes, background)
                                
 By Jan Lopatka
                                
 PRAGUE, Feb 22 (Reuters) - The Czech Republic, which holds
the European Union's rotating presidency, said on Sunday it
would propose EU states start cutting budget deficits as of next
year, but acknowledged its own gap will delay adoption of the
euro.
                                
 Deputy Finance Minister Eduard Janota said the Czechs would
propose to EU finance ministers that members begin cutting
budget gaps by 0.5 percentage points per year to get public
budgets back on track after an explosion of debt amid the
financial crisis.
                                
 "The debate in Brussels is about how to go on after this
year. It is being accepted that 2009 is a crisis year, when the
average deficit in the euro zone countries will be over 4
percent (of gross domestic product)," Janota said.
                                
 "Finance Minister Miroslav Kalousek will be proposing that
from 2010 EU countries will be cutting the public deficit
related to GDP by at least half a percentage point," he said.
                                
 Janota said the Czech deficit would be around 4 percent this
year, which would delay any plans to join soon the ERM-2
exchange rate system -- a two-year waiting room ahead of euro
adoption -- and thus also postpone euro entry.
                                
 "If the deficit is around 4 percent, maybe a touch above 4
percent, then despite all effort we will not be able to enter
the system of exchange rates in 2010, 2011, and thus (we can
enter) into the (monetary) union some time in 2014, 2015," he
said.
                                
 Czech banks have so far withstood the global financial
crisis well but the country's highly export-dependent
manufacturing industry has been hard hit, leading to government
predictions of an up to 2 percent economic decline this year, a
rise in the budget gap and sharp fall of the crown currency.
                                
 The country had earlier dropped its 2010 euro entry target,
but the government has said it would set a new one in November
this year. Technically 2013 was seen as the earliest possible
date before the crisis bit.
                                
 The Czechs want to spend only the minimum allowed two years
in the ERM-2, because they fear the +/-15 percent band around a
negotiated central parity rate may invite speculators. 
                                
 They want to enter only once they are confident the country
can meet the other euro entry criteria, which include a fiscal
gap below 3 percent of GDP, and caps on debt, inflation and
interest rates.
                                
 Neighbouring Poland has entered talks on joining the ERM-2
soon, with en eye on euro zone entry in 2012.
 (Reporting by Jan Lopatka; Editing by Erica Billingham and Jon
Loades-Carter)