…Malta also gets green light from Brussels
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The European Union on Tuesday gave Cyprus and Malta final approval to start using the euro next year, taking to 15 the number of nations sharing the common currency. The finance ministers, meeting in Brussels, agreed that the two Mediterranean islands should adopt the currency as expected on January 1, 2008.
Portuguese Finance Minister Fernando Teixeira dos Santos said: “I would like to congratulate these two countries for this achievement, which is the result of appropriate policies which have been conducted in the last years.”
“I expect that the adoption of the euro in these two countries will encourage of them to keep with such policies and to keep with the soundness of their economies and improve the competitiveness of their economies,” he added.
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Exchange rate locked
Finance Ministers also set an exchange rate of one euro to 0.585274 Cypriot pounds and 0.4293 Maltese lira when the two countries swap their existing coins and banknotes for the euro.
The locking of the rate means that there is no more exchange concerns regarding a possible devaluation and come September, all businesses will be able to start displaying dual pricing in Cyprus pounds and euros at the central rate of 0.585274 or 1.7086 euros per Cyprus pound.
This is the same rate at which the Cyprus pound entered into the ERM II on May 2, 2005, a year after Cyprus officially became an EU member.
The conversion rate of 0.585274 or 1.7086 is also the same rate at which on 19 June 1992 Cyprus unilaterally pegged its currency to the predecessor of the euro, the ECU. Since then, the Cyprus pound has always traded within the tight plus or minus band of 2.25% from the central rate, even though under the ERM II rules, the degree of fluctuation was plus or minus 15%.
Tens of businesses have already pledged to enforce a fair pricing and invoicing policy with many large enterprises pledging to round down prices when euro becomes official currency on January 1, 2008.
The main concern for the Cypriot public is that with the introduction of the euro, business establishments would take advantage of the shift and hike prices. Now, it seems more and more people are becoming convinced that the authorities will be in a position to clamp down and with the help of the private sector, keep price adjustments in check.
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Small influence
Cyprus and Malta will bring just over 1 million people to the 318 million who now use the euro. Their economies account for only 0.2 percent of euro-zone gross domestic product.
Both joined the EU in May 2004. Only one other country that joined the EU at the same time — Slovenia — has so far adopted the euro.
The largest of the EU newcomers — Poland, Hungary, the Czech Republic, Romania and Bulgaria — have yet to set a date for euro entry. Estonia had originally planned to join next year but will delay membership as its growing economy sees inflation surge, a problem that has also slowed Latvian and Lithuanian plans. Slovakia is scheduled to join in 2009.
Cyprus and Malta worked hard to meet the strict EU economic standards for euro nations, with Cypriot workers agreeing to lower wage demands that could boost inflation while Malta paid off debt to cut its budget deficit below the EU maximum of 3 percent of gross domestic product.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia said he recognized the effort they had made to fulfil the entrance criteria.
To keep their shared currency stable, euro nations are also supposed to keep overall public debt below 60 percent of gross domestic product.
However, even the largest euro economies have had trouble with these rules and euro candidates can be accepted if they can show that they are on track to meet these limits.
After Cyprus and Malta join, Slovakia is the next in line for eurozone membership in 2009.
The Baltic trio of Estonia, Latvia and Lithuania all harbour plans to join the eurozone quickly, but they have had to scale back their ambitions because inflation in their booming economies has been running too high.
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