Cyprus launches euro information campaign
A leading European Commission official called on both the public and private sector to redouble efforts to adopt the euro at the launch of the Cyprus euro information campaign at the Hilton Park Hotel on Wednesday, while the Cypriot speakers were at pains to allay fears among the general public about the possible costs fo the euro and to downplay calls from the coalition communist party AKEL to delay the adoption of the euro by a year.
Assuming Cyprus meets its targets, Cyprus is due to adopt the euro on January 1, 2008.
President Tassos Papadopoulos reminded the audience that adopting the euro is “not an issue of choice…it is compulsory, it is a commitment.”
However, he added that adopting the euro was also important because of its positive impact on structural reform.
He repeated his stance that adopting the euro will not be done at the expense of social welfare.
Noting that social benefits rose by 9% in 2005 and continue to rise faster than inflation in 2006, Papadopoulos said “This government is not going to sacrifice the state of social welfare or reduce social benefits to the less wealthy.”
As for fears about inflation, President Papadopoulos cited research which showed that overall prices rose by only between 0.1% and 0.3% in the eurozone member states after the introduction of the euro, despite perceptions to the contrary.
Finance Minister Michalis Sarris, meanwhile, reminded the audience that the preparation and adoption of the euro leads to lower borrowing costs, because interest rates in the euro area are lower than those in Cyprus.
Central Bank Governor Christodoulos Christodoulou, said ERM2 entry had been accompanied by positive developments, such as inflows of foreign currency, stability of the exchange rate and a fall in interest rates.
He said that “important work has been done already” by the Ministry of Finance and Central Bank to adopt the euro and that “businesses should work in order to be prepared”.
Euro saves 3-4% of GDP in interest payments
Director-General of the European Commission’s DG Economic and Financial Affairs, Klaus Regling, noted that adopting the euro has a significant impact on the amount of money paid by government for long-term loans. The average spread on German bunds narrowed from 300 to 30 basis points, meaning the public debt payments fell by around 3 to 4% each year.
“Lower interest rates of course support investment and employment” in many countries, he said.
Public and private sector must redouble efforts
Lithuania was recently told it could not adopt the euro because it had missed the inflation target.
Hinting that the Commission will be very strict with Cyprus too, Regling said that it fully supports the adoption of the euro by all new members states “once the spirit and the letter of the Treaty requirements have been met”.
He noted that Cyprus “has taken several important steps”, including cutting its budget deficit to less than 3% of GDP in 2005, but said that “it is critical that all actors, both public and private, redouble their efforts”.
Business: don’t wait till it’s too late
The Director of the Banknotes Directorate at the European Central Bank, Antti Heinonen, outlined some of the lessons learned from the first round of euro adoption.
Experience has shown that everyone preferred a much quicker changeover–around 2 weeks–than in traditional note-changing periods which normally take six months. This can therefore create bottlenecks in areas such as storage capacity, coin machines and so on.
This time, he said there is a risk that businesses will not prepare, because the euro is already in circulation.
If businesses wait until they know the adoption date for certain, “it is definitely too late,” he said.
Fiona Mullen
