EUROPEAN Commissioner for Economic and Monetary Affairs Joaquín Almunia yesterday warned there was no time for complacency on the economy between now and joining the eurozone, and that Cyprus had much to do before the switch.
Almunia, who is on two-day visit to the island, welcomed the government’s commitment to reducing the public debt, which he said had already led to a significant improvement of the fiscal balance in 2004.
“There is no time for complacency and I am sure that the government will continue to implement its Convergence Programme with vigour and determination,” he said. “This would also help you bring down the relatively high public debt to GDP ratio as planned.”
He said that Cyprus had a long track record of solid economic performance in a stable macroeconomic environment and that exchange rate stability had also for a long time been the corner stone of the Cypriot macroeconomic framework and would be further reinforced by participation in ERM II, which the island joined earlier this month.
“When it comes to preparing the introduction of the euro, I firmly believe that the European Union, in general, and the European Commission in particular, should be your active partners,” Almunia said.
“We must do all we can to ensure that future changeovers to the euro continue to be true success stories.”
He said that successful entry into the euro area required not only fulfilment of the Maastricht criteria, which sets the fiscal ceiling at 3 per cent, but also extensive and timely practical preparations.
“The importance of careful practical preparations will be particularly relevant if Cyprus would decide to adopt the euro under a so-called ‘big bang’ scenario,” Almunia said.”
Under this approach, euro banknotes and coins become legal tender on the same date as the country’s entry into the euro area.
Alumina said that the first and main lesson from the previous changeover was that careful and pro-active preparations at national level paid off. The second prerequisite was that the transition from the national currency to the euro needed to be as short and swift as reasonably possible.
“The third and last lesson is that the mental or psychological changeover by citizens is by far the most difficult part,” he added. “This applies to issues such as the erroneous perception of price increases, or to the difficulty for many people to think and calculate in euro.”
Commenting on Cyprus in particular Almunia said he saw two priorities for the island. Practical preparations for the introduction of the euro should gain momentum, he said, adding that the action plan laid down in December 2004 should be further developed.
Alumina also called for an “ambitious” information programme.
“The better citizens are informed, the less apprehensive they will be about changing currencies. We know from experience that the primary cause of fear and resistance is ignorance,” he said.
According to the latest Commission’s Eurobarometer survey of October 2004, even though 72 per cent of the Cyprus’ population are interested in the topic, only 43 per cent consider themselves to be well informed about the euro.
“This is better than the average of the recently acceded Member States but this is still not sufficient, since the entire population should be very well informed about their new currency,” said Almunia. “There are still 56 per cent of the population who feel ill-informed and, as a probable consequence, 34 per cent of the citizens would like to have an introduction of the euro as late as possible.”
Almunia also said that the view of negative price changes was generally erroneous but that people still needed to be reassured. Euro polls in Cyprus showed that it was a real concern, he said.
“Commitments to price stability should be negotiated in advance with the retail sector and could be materialised by a sticker showing the retailer’s commitment to stable prices,” said Almunia.
“The consumer will look for this sticker and this should help creating market pressure in favour of the generalisation of the commitment.
Secondly, consumers’ perception of price increases should also be tackled. A quick monitoring of the evolution of prices could also nip in the bud false inflation rumours.”
