THE DANISH rejection of the euro in Thursday’s referendum spells more gloom for the ailing euro and the heavy import burden in Cyprus.
“Cyprus has really benefited from the weak euro by becoming a cheaper tourist destination, particularly for British. If we hadn’t been pegged to the euro, then we would have lost out to Greek and Spanish development,” said Marios Clerides, senior manager of planning and research at the Hellenic Bank.
The economy’s biggest burden in terms of currency exchange is the euro’s dismal performance against the dollar.
The euro has plunged nearly 30 per cent since it was pegged at in January 1999.
Inflationary pressure is acute and oil importers have been bled dry with monthly losses of up to £14 million. The European Central Bank has an inflationary target of 2 per cent – in Cyprus it has been 4.4 per cent this year.
There’s little chance the US dollar will devalue before the presidential elections in November.
But real impact of the Danish no-vote is political. Welcomed as a beacon by eurosceptics in Britain and Sweden, Cyprus is nonetheless vehemently pro-Europe.
All political parties in the Republic support the island’s ascension to full membership.
“People look to the EU to upgrade Cyprus, and because of the link to finding a solution of the political problem, with security from Turkey,” said Clerdies.
But while yes to the euro is no automatic yes for a federal European state, no the euro limits of the cohesion of tight political ties.
The Cypriots are relying on Brussels homogeneity to bind in Turkey and act as the ultimate guarantor of Republican sovereignty.
If a national referendum can hold so much sway, then the recalcitrant Turkey may not be brought to heel quite so forcibly after all.
The Danish referendum could be an early warning that the path ahead won’t be smooth moving.
“The European Central Bank, the Bank of England, the Bank of Japan and the US Federal Reserve are on stand to intervene if the euro sinks again,” said Kyriakos Stavrou of the international division of the Central Bank of Cyprus.
Last week the world’s central banks clubbed together to prop up the baby currency that has devalued persistently since its launch in January 1999.
The mass selling of foreign currency reserves hauled the euro up 4 cents to close at US 88 cents last Friday.
Following the referendum result, the euro has continued to hover around the 88-cent mark, and economists think the Danish vote will have little economic impact on the 11 other European bloc countries.
“The Cyprus pound was pegged to the euro at about CY£1.0499 this morning. There was just a minimal fluctuation down to £1.0485,” said Stavrou.
Analysts were yesterday afternoon scrutinising the effect of the Dow Jones as the market opened just after lunchtime Cyprus time.
But economists are not expecting major fluctuations, because the awaited no vote in Denmark had been factored into the market forces.
Sterling yesterday edged ahead from the euro, as the Danish vote buffed up British ‘eurosceptics’ and defenders of the strong pound.
Sterling was worth CY£1.0479 yesterday lunchtime. Despite some tail off since sterling stormed an all time exchange rate low of 99 cents in May, sterling looks set to stay strong against the euro as it keeps aloft from European Monetary Union, as the euro scrapes around at the bottom of the reserve currency pile.
And the day sterling joins the euro is likely to be the day British tourists no longer have quite so much available cash to spend on the Cypriot holidays.
