Cyprus’s hopes for joining the Exchange Rate Mechanism received a boost following the endorsement by the European Commission of the government’s Convergence Program.
The Commission said that Cyprus was on track to meeting its budget deficit target of 2.9% for 2005, describing the effort as ambitious but feasible. The Commission also welcomed Cyprus’s commitment to take additional measures in case of lower-than-expected economic growth.
The endorsement of the government’s Convergence Program is good news with respect to the prospects for joining ERM II because the fiscal part of the Maastricht criteria is often the most challenging for prospective members to meet.
The next step in the process will be the approval of the Commission’s recommendations on the convergence programs of seven countries including Cyprus, by the Council of Finance Ministers meeting on March 8. The influential Economist Intelligence Unit research group also forecast a below 3% budget deficit for 2005 and said that a likely date for ERM II entry was May of 2005.