CYPRUS’ ambitions of adopting the euro in January 2008 are on track with the economy performing better than expected and the budget deficit falling, President Tassos Papadopoulos said yesterday.
The island is pursuing an austerity programme to keep its deficit below 3.0 per cent of gross domestic product and cut its public debt to below 60 per cent of GDP – both key indicators in testing whether an economy is ready to join the euro zone.
“Our economy has been performing better than expected,” Papadopoulos told foreign correspondents.
“We hope to close the accounts of 2006 with a deficit of 1.5 per cent and our public debt, which when we assumed [government in 2003] was 72 per cent, is now lower at 64 per cent and hopefully will soon be below 60.”
His remarks mean the budget deficit in Cyprus, a European Union member since 2004, has come down faster than expected, since earlier projections had been for the shortfall to come out at 1.9 per cent of GDP for 2006.
In response to a question, Papadopoulos also said a devaluation of the Cyprus pound was “out of the question” ahead of adoption of the euro.
“The Cyprus pound has for the past 32 months been trading higher than the euro. All indications are against any suggestion of a devaluation. There is no such question.”
If it is deemed ready, the Cyprus pound, which entered the EU’s exchange rate mechanism ERM-2 in 2005, will be locked against the euro at an irreversible exchange rate for conversion purposes in mid-2007.
AKEL, the island’s powerful communist party and main partner in Papadopoulos’ centre-left governing coalition, has previously floated the idea of postponing euro zone admission until 2009. It says a delay would buffer the economy better from shocks and enable better preparation for the changeover.
The debate has been simmering for almost a year but it has not evolved into a fully-fledged dispute within Papadopoulos’ administration.
While not referring to AKEL directly, Papadopoulos said his administration would be able to meet its euro zone commitments and maintain its social commitments, a euphemism for generosity in government handouts.
“You cannot choose when to join. You can only choose when you can ask the EU to monitor [government] accounts and approve it joining … it is not a question of us postponing it for one year,” he said.
In December the European Central Bank and the European Union Commission assessed that Cyprus met three of the five euro zone criteria.
They were convergence on its deficit and public debt levels, convergence of its long term interest rates to those in the euro zone, and keeping inflation within 1.5 percentage points of three EU countries displaying the lowest inflation.
It said it was close to fulfilling the remaining two on harmonising central bank legislation and foreign exchange stability.
