EUROPEAN Union finance ministers yesterday gave Cyprus the definitive go-ahead to adopt the euro yesterday, fixing the exchange rate at 1.7 euros to a Cyprus pound.
The ministers, meeting in Brussels, agreed that both Cyprus and Malta were ready to adopt the single European currency as expected on January 1, 2008.
With the last EU hurdle out of the way, the island has less than five months for the massive practical preparations necessary to usher in the euro and retire the Cyprus pound.
As of yesterday, one euro is worth 0.585274 Cyprus pounds.
“I ask you all to memorise this number, because it’s going to be very important,” Central Bank governor Athanasios Orphanides urged at a news conference yesterday.
“Alternatively, you could think of a pound being worth 1.7 euros,” he added.
Finance Minister Michalis Sarris yesterday hailed ECOFIN’s decision as a historic day for Cyprus.
“The forthcoming introduction of the euro is a milestone in the short history of the Republic of Cyprus. It will lead to a further integration of Cyprus into the EU, and will make our small country part of the large euro area,” Sarris said.
He said the favourable assessment of Cyprus’ convergence to the euro area constituted “an endorsement of the economic policies undertaken in recent years.
“We are firmly committed to continue with the fiscal consolidation policy. We target a balanced budget by 2009 and a further reduction of public debt to levels below 60 per cent of GDP by 2008. We remain, at the same time, committed to the Lisbon agenda, which incorporates our vision of a socially cohesive society,” he added.
The minister forecast that the adoption of the euro would bring concrete and tangible benefits to Cypriot consumers as well as businesses.
“The people of Cyprus have worked hard to make the adoption of the euro a reality. I would like to thank everyone for their work. We acknowledge that a lot more work is needed to make the changeover to the euro a complete success. I have no doubts that on January 1, 2008, we will have a successful transition to the euro,” he concluded.
The value at which the Cyprus pound was locked was just a whisker off Monday’s exchange rate of 0.5833 euros.
“The exchange rate set was based on the central parity decided by the European Commission two years ago… you could say it’s a vote of confidence in the Cyprus economy,” said economist Dr. Stelios Platis.
The decision will increase the ranks of the currency club to 15 members.
Cyprus and Malta will bring just over 1 million people to the 318 million who now use the euro. Their economies account for only 0.2 percent of euro-zone gross domestic product.
Cyprus worked hard to meet the strict EU economic standards for euro nations, with workers agreeing to calm wage demands that could hike inflation.
To keep their shared currency stable, euro nations are also supposed to keep overall public debt below 60 per cent.
“What this development means is that there is now zero risk for the Cyprus pound vis a vis the euro. Very slight deviations might occur until January 1, 2008, but these are due mostly to currency conversion costs, leaving no scope for speculation,” Platis said.
With the exchange rate now fixed for all time, the challenges ahead for the Cypriot economy would shift to productivity and competitiveness, he said.
“Cyprus has a lot going for it. We have a rate of growth that is almost double the EU average. This has largely been fed by a vibrant banking sector and a booming real estate market.
“On the other hand, according to the latest Global Competitiveness Report, Cyprus ranked very low in the EU, coming in 23rd out of 25. Foreigners will be able to directly compare prices in Cyprus, and it’s true that many commodities here are expensive. That will become a major issue in coming years,” Platis added.
