FINANCE Minister Michael Sarris yesterday rebuffed calls from AKEL to delay adopting the euro, saying that changing the 2008 target could disrupt efforts to control the public finances.
Sarris also stressed that Cyprus would lock its currency, the pound, against the euro in the middle of next year.
In the run up to parliamentary elections on May 21, AKEL, the main party in the governing coalition, has said it wants authorities to delay euro adoption until 2009, arguing the public need to be better prepared for the change.
Sarris disagreed, saying authorities had based their economic planning around a 2008 target and a delay could see attempts to streamline the economy dislodged.
“It could drag us into unnecessary situations… It is not an issue of postponement for a year. It is an issue of setting a target, and following it,” he told state radio.
Opinion polls suggest a large number of Cypriots are worried that inflationary pressures may arise from changing currencies.
Cyprus is in the throes of a stringent consolidation programme designed to keep its budget deficit below 3.0 per cent of GDP, reduce public debt from more than 70 per cent of GDP and to keep inflation low.
AKEL says a rash adoption of the euro would serve big business. A delay would allow the government to meet social commitments more generously, it says.
One opposition analyst said AKEL’s concerns were also fuelled by a realisation that euro zone admission would start deep reforms, which the Cypriot economy needs, ranging from tackling a looming pensions crisis to an inflated public sector.
Sarris, a non-party former World Bank economist, says early euro adoption will lower the cost of borrowing, spur investment and eradicate exchange rate risk. But Cyprus’ credibility would be on the line if it started to shift the goalposts.
Upping the pressure for a broad consensus, he said the country would take the irreversible step of locking its currency next year. “The locking-in of the pound against the euro will take place around June, 2007,” said Sarris.
The debate appears to have caused little friction in the Cyprus government, where parties are defined by their stand on the long-running division of the island between ethnic Greek and Turkish Cypriots, and not economic policies.
“Our concern is about the well-being of all the people. And we say that if we enter in January 2009 it will give this government the ability to adopt, with ease and open-handedness, a social policy which will embrace the ordinary person,” AKEL chief Demetris Christofias was quoted as saying in his party newspaper Haravghi yesterday.
AKEL’s caution is also reflected by a Central Bank-commissioned poll from last January, which said 59 per cent of Cypriots were worried by inflationary impacts.
But AKEL wants to have its opposition on the record so it can cite it in the event of possible upheavals, said one analyst.
“AKEL doesn’t want to be credited with the cost of reforming an economy because adoption of the euro would force Cyprus to reform its economic structure, and that would include privatisations,” said Stelios Platis, an economist.
The present administration has ruled out selling off state utilities as a means to plug deficits.
