ECB to assess Cyprus strictly

— Trichet hints at rate hike

The first concrete indication of the European Central Bank’s assessment of Cyprus’ progress towards adopting the euro will come this autumn when the ECB will publish its Convergence Report on the 10 new European Union member states, plus Sweden.

Speaking during his quarterly report to the European Parliament, ECB President Jean-Claude Trichet indicated that there would be no leniency.

“No additional criteria will be introduced… at the same time there will be no relaxation of the criteria,” he said.

He added that the criteria will have to be met not only “as a snapshot” but must be sustainable “in the very long term.”

Meanwhile, the European Commission on Tuesday forecast a pick-up in economic recovery across the EU despite disappointing results for the last quarter of 2005.

The Commission said it expected eurozone economies to grow by 1.9% in 2006, up from 1.3% last year. Growth in the wider EU would rise to 2.2% in 2006, an increase from 1.5% last year.

The Commission forecasts are expected to increase pressure on the ECB not to increase interest rates as expected by another quarter percentage next month.

Trichet fuelled expectations of an interest rate hike on Monday by telling the European Parliament that “vigilance” was needed to contain inflation as recovery gathers pace.

In an unusual move, EU finance ministers last week urged Trichet to act “responsibly” and not jeopardise the fragile recovery by increasing interest rates.

Fiona Mullen reporting from Brussels