CYPRUS AND Malta have received the green light to adopt the euro from January 1 next year after fulfilling of all the necessary economic criteria.
Joaquin Almunia, European Commissioner for Economic and Monetary Affairs told a televised news conference in Brussels that Cyprus had achieved a high degree of economic convergence with the euro area and was ready to adopt the single currency in January 2008.
“I hope that on January 1, 2008 these two new members of the euro area will sit in the Eurogroup and the governors of their central banks will be members of the Governing Council of the ECB and their citizens will use the euro as their own currency,” Almunia said.
“However, in order to ensure that euro adoption will be a truly successful story, Cyprus must continue to implement stability-oriented policies to safeguard its external competitiveness.”.
Yesterday’s decision, hailed as “historic” by the government, was the first of three approval processes Cyprus must go through but Almunia said he was convinced nothing would stand in the way.
A decision will be taken by EU Finance Ministers on June 5 and on June 22-23 the EU heads of government summit will make the final decision.
Almunia said in both cases fulfilment of the obligations was clear and if the decision at the summit was positive a proposal would be presented for an irrevocable parity of the conversion rate to be discussed and adopted in July.
There has been some speculation in recent weeks that the Council summit might raise the issue of “political implications” on adoption of the euro by a divided country and the possible consequences on reunification at a later date.
However Almunia categorically laid such fears to rest yesterday.
“I am absolutely convinced that on June 22 the European Council will take the decision that Cyprus and Malta will from January 1, 2008 be members of the euro zone. No question about it as far as I am concerned,” Almunia said.
He was clear that the assessment of Cyprus’ eurozone entry should focus only on the territory controlled by the Republic of Cyprus “not the non-controlled areas” where the EU acquis did not apply.
“On economic criteria it is not possible to take into account the possible consequences of unification of the island because we don’t know when it would take place and we don’t know the conditions and for this reason we didn’t include any kind of reference for this possible hypothesis,” Almunia said.
He said however that inside the Commission the different scenarios had been considered “and we have our own assessment”.
“We are not ignoring the consequences but we consider it’s not rational to include in the assessment report,” he said.
Almunia also said the Commission also had a clear decision against the unilateral adoption of the eurozone in the north, as has been proposed in some quarters. He said he had discussed the issue with Finance Minster Michalis Sarris and they were in agreement.
“The economic consequences are well known by everyone and they are not positive under the current circumstances,” said Almunia.
Asked whether he thought it was fair that Cyprus was being “rewarded” by being given the green light to adopt the euro, Almunia said: “The Republic of Cyprus is a member of the EU. It is a member as any other member and has a right to equal treatment and has the obligation to prepare the economy and country to join the euro.
“So we are implementing European treaties and European legal framework. We are not allowed to make an exception in this case.”
Almunia said there were no legal doubts on this issue and when the island was reunited, the whole country would be under the legal framework of the acquis. He said he was convinced the decision at the June summit would be unanimous.
Cyprus and Malta will bring to 15 the number of countries using the euro out of 27 European Union members, up from 11 when the single currency was launched eight years ago.
The European Central Bank (ECB) also issued a report on Cyprus’ euro adoption yesterday urging the island to continue on a sustainable path of fiscal consolidation and to proceed with structural reforms of the product and labour markets.
The bank also said that a possible reunification of Cyprus could entail additional structural and fiscal challenges depending on the specific economic and fiscal arrangements.
