Early EMU entry for Cyprus?

NICOSIA (Reuters) – Early membership of European Union newcomer Cyprus in the eurozone should not pose any major problems, German Finance Minister Hans Eichel said yesterday. Cyprus hopes to join the single currency about two years after it joins the European Union with nine other countries, most of them from Central and Eastern Europe, next May. Local officials have set a target date of January 2007 for Cyprus adopting the single currency. «In my view early entry of Cyprus to the economic and monetary union would not pose major problems,» Eichel told a news conference in Nicosia, speaking through an interpreter. Eichel, on a tour of several acceding states, said Cyprus needed to reflect on the effects of joining the eurozone. It needed to assess the flexibility it would lose by no longer having its exchange rate as an instrument buffering the economy from shocks, and the flexibility it would gain in other areas such as the labor market and increased competitiveness, he said. «If Cyprus has the desire to join early and pursue a pragmatic approach on how best to face (EMU) membership, I think they will have the support of Germany on this,» he said. Cyprus has remained upbeat that it can meet the tough convergence criteria for the eurozone in spite of a recent worsening of key economic indicators as a result of a fall in tourism arrivals. Tourism is the island’s main money spinner and represents a fifth of its gross domestic product. The fiscal deficit is expected to exceed five percent of gross domestic product this year, calling into question whether it can meet the EU requirement of 3 percent or under within the next three years.