And risk of big loss
Leader of the main coalition party AKEL Demetris Christofias called again on Monday for a delay in the adoption of the euro to 2009 but as usual used economically dubious arguments for the delay.
One such argument was that the economy is improving.
The growth rate had doubled during their time in office, he said. This is true, though 2003 was badly damaged by the Iraq war, and one wonders why he implies that it would be better to join the euro if the economy were doing badly.
He also acknowledged that the budget deficit had fallen to 2.4% of GDP. This is also true, though only after the government had presided over an increase to 6.3% of GDP in 2004–its second year of office.
Moreover, by admitting that the deficit has fallen to less than 3% of GDP, he has also admitted that we have met the most difficult of the Maastricht criteria.
But, he said, the economy needs more time for stabilisation and consolidation.
Why? As we have pointed out in this newspaper before, the crunch budget year for euro adoption is 2006, and that budget has already been passed. All the other Maastricht criteria are on course, so it looks like we are going to sail into the euro, assuming no nasty surprises.
The only issue Christofias might have a point about is the risk of profiteering. How many businesses will round up CYP 4.00 to EUR 7.00 instead of EUR 6.80, for example?
However, this is a risk that will exist in 2009 as much as it does in 2008.
The best way to tackle it is to do exactly what the Ministry of Finance, Central Bank and EU authorities are planning on doing, namely encouraging dual-price displays for several months both before and after the switchover to the euro.
So the biggest risk to the adoption of the euro is to talk about delay.
The uncertainty will put off foreign investors and could lead to a slide of the Cyprus pound (and a big rise in any foreign debt held by AKEL).
It will also encourage businesses to sit back and relax about the euro, at a time when they should be working hard to ensure a smooth transition of systems.
Fiona Mullen
