ECONOMY

Cyprus eyes early ERM bid

NICOSIA (Reuters) – Cyprus could join the European Exchange Rate Mechanism in the first quarter of 2005 if it sticks to an austerity plan designed to cut its budget deficit, President Tassos Papadopoulos said yesterday. Cyprus, which joined the European Union in May, will adopt the euro by 2007 or 2008 at the latest. It needs to have its currency inside the ERM-2 stabilization mechanism for at least two years before joining the eurozone. «Our fiscal consolidation plan was approved at the last ECOFIN (EU finance ministers) gathering and we have indications that if we follow it steadily, by March 2005 we can accede to the Exchange Rate Mechanism,» Papadopoulos told business leaders in the Cypriot capital Nicosia. ERM-2 would anchor the Cyprus pound to the euro in a 15 percent fluctuation band around a yet-to-be determined central parity rate. The pound is unofficially pegged to the euro at a reference rate of one Cyprus pound to 1.7086 euros in a 15 percent fluctuation band. Nicosia hopes to cut its budget deficit to the eurozone ceiling of 3.0 percent by the end of 2005. It has forecast a deficit of 4.8 percent for 2004. The fiscal consolidation plan aims to boost revenue and cut spending through measures that include increasing the retirement age in the public sector and charges for public services.