NICOSIA – Cyprus expects to link its pound to the European Exchange Rate Mechanism (ERM-2) by March or April 2005 at the latest, and sees no reason to change the currency’s current rate against the euro, said Finance Minister Makis Keravnos. Keravnos told Reuters in an interview the island’s target of euro adoption by 2007 or 2008 at the latest was unchanged, and that a convergence program designed to cut the budget deficit was on track. The European Commission took Cyprus off the excessive deficit procedure watch-list last week. «We feel Cyprus is in a position to meet its strategic goal of joining ERM-2. We have established contact with the Commission – obviously it is a two-way street – but I believe ERM-2 admission will be in the first months of 2005… end of March or beginning of April,» Keravnos said late on Thursday. Countries wanting to adopt the euro are expected to keep their currencies in the ERM-2 grid for at least two years. ERM-2 would require Cyprus to anchor the pound at an agreed parity rate against the euro in a stabilisation band designed to protect currencies from pressure with the firepower of the European Central Bank. Asked at what rate he envisaged the Cyprus pound entering the mechanism, Keravnos said, «I think the rate will be at the same levels as today, I do not see any reason why it should not.» At present the central reference rate is one Cyprus pound to 1.7086 euros, and the pound fluctuates in an unofficial band of 15 percent, but is routinely kept within a 2.25 percent range. Deficit busting Cyprus became a member of the European Union on May 1, but saw its bid for swift accession to ERM-2 troubled by wide budget deficits and high debt levels, which now exceed guidelines for the eurozone. Of the 10 countries which joined the EU in May, three – Estonia, Lithuania and Slovenia – have already entered ERM-2. Analysts and markets are speculating that Cyprus could join ERM-2 with Latvia, another newcomer. Keravnos said he planned to visit Riga in February or March after an invitation from his Latvian counterpart to discuss the issue. Fiscal slippage has been a serious concern for the past two years. Cyprus had a budget deficit of 6.3 percent of GDP in 2003, and aims for a 4.8 percent deficit in 2004. Eurozone entry criteria include a budget deficit ceiling of 3 percent. Authorities have boosted revenue collection with more vigorous pursuit of tax dodgers – VAT inspectors launched a blitz of raids in the autumn – and a cap on spending. «Our policy has been no new taxes unless all other avenues of improving finances were exhausted. We do not want to impact on the competitiveness of the economy or make any move which would affect the average citizen,» said Keravnos. The fiscal game plan envisages snipping the deficit to 2.9 percent of GDP by the end of 2005, and to eliminate it by 2007. One potential hurdle was overcome when authorities clinched a deal with labor unions to increase the retirement age in the public sector to 63 from 60, effective from July 2005. They have has also secured consent for no pay rises in 2004 or 2005, with a 2 percent increase in 2006. The move would save public coffers millions of pounds and ease pressure on the social security and pension funds, Keravnos said.