EXPERTS from the Finance Ministry and the Central Bank warned yesterday that delaying eurozone entry beyond January 1, 2008 could cause serious problems for the economy.
“There is perception that the success of the economy was of our own making and that the adoption of the euro may derail this,” said Zinon Kontolemis, an adviser to the Finance Ministry.
He said it was in fact the EU that had speeded up and initiated structural reforms in the Cyprus economy “and this is a well-known fact”.
“It boosted competition and resulted in tax reform just before 2004. It brought about fundamental reforms and the results are visible. The assertion that this will go bad after 2008 is a myth. It’s wrong,” he said.
Kontolemis was speaking at a conference on the euro, organised for Greek and Turkish Cypriot media in Nicosia, where the issue of postponement until January 1, 2009, as proposed by AKEL, was raised.
Both Kontolemis and George Syrichas, Manager of the Economic Research Department for European Affairs at the Central Bank, said the time was ripe now for eurozone entry and that if there was a delay there was no telling when all of the necessary criteria would converge again.
“A delay could become even longer than we think,” Syrichas said.
He said the criteria for eurozone entry were judged by the performance of all member states. “We are judged by the criteria of 27 countries and if we delay it could become 30 countries,” he said. “If we delay, more countries may apply and it will make it more difficult to meet the criteria.”
Kontolemis said there was an undisputable fact rarely mentioned, and that was that the euro area was a low inflation zone. Fifteen years ago, Greece’s inflation was in double digits. Now it is two to three per cent. “The issue of high inflation is a paradox and must be put in perspective,” he added.
Referring to the controversial assertion that eurzone entry would result in a trade-off that would eat into social policies, Kontolemis said this too was a myth.
“When public finances are in order, there should be no need of a trade off,” he said.
“The trade offs only appear when we have high debt and when we are irresponsible.
The trade off is of our own making and is unrelated to the euro or the EU.”
He said that if government behaved reasonably inside the eurozone, the benefits would be maximised.
“Only when we bring down debts will we be in a position to plan and implement an effective social policy,” Kontolemis said. “Eurozone entry is an obligation. If we don’t do it now, who knows when the criteria will converge again?”
Syrichas also spoke of how small countries could benefit more from the euro, even though in the case of Cyprus, the pound had been pegged to Europe for so long that the benefits were already visible to a large extent.
In terms of GDP per capita, however, he said benefits would be obvious.
“Small countries cannot afford to stay out of the euro because it gives them the same advantages that only Germany used to have, a stable currency, low inflation and low interest rates,” he said.
“It used to be impossible to get a mortgage in Greece and now the sector is booming.
If we stay out of the eurozone, our interest rates will always be higher to support our currency,” he added.
