ECONOMY

Fears of rising prices ahead of euro adoption weigh on Cyprus polls

NICOSIA – Cyprus’s planned adoption of the euro in 2008 and the rising costs of living on the island have emerged as hot economic topics in the campaign for Sunday’s parliamentary elections. The communist party AKEL is the main partner in President Tassos Papadopoulos’s government and the most euroskeptic – despite backing EU accession. It is fighting for a one-year delay on adopting the euro, warning that stringent measures to balance the books could hurt poorer members of society. «The economy is in a transitional stage of being reformed by means of new and unknown institutions of the EU and this will go a lot more smoothly if more time is given until 2009,» said Akel General Secretary Demetris Christofias. The government, however, is committed to joining the eurozone as planned on January 1, 2008, implementing an austerity drive to meet the fiscal targets and launching a public awareness campaign at the end of the month. Finance Minister Michalis Sarris boasted that an EU report on Cyprus this month showed the economy «is on a positive course regarding growth rates and cleaning up public finances.» While there are public fears that joining the euro could see prices in the Greek-Cypriot south of the island rise further, economists say the move would benefit Cyprus both politically and economically. In April 2005, Cyprus signed on to the European exchange rate mechanism (ERM2), a two-year anteroom to euro adoption, almost a year after it joined the European Union and without a deal to end its decades-old division. Sunday’s election is the first parliamentary vote in the south of the island since a UN reunification plan was rejected by Greek-Cypriot voters despite winning the support of the rival Turkish-Cypriot community. «The more integrated we are with Europe, the more European characteristics a future Cyprus settlement will attain,» said Louis Christofides of Cyprus University’s economics department. «In case of a Cyprus solution, questions over the new state’s currency and its monetary policy would have already been answered… There would be no need for discussion over how monetary policy would be forged, since the European Central Bank would have the final say.» Christofides said a Cyprus in the eurozone would enjoy all the benefits of integration into a large economy. «There would be no uncertainty over exchange rates, and transaction costs would be eliminated, such as money conversion fees. Moreover, cross-border shopping would become much easier and ultimately beneficial for the consumer.» There is, however, widespread public perception that adopting the euro will not stem the rising costs of living, despite EU projections of 2.4 percent inflation this year and 2.2 percent in 2007. For example, electricity prices have soared 60 percent over the past two years while the price of a kilo of sugar has jumped from around 20 cents (35 euro cents) last summer to 60 cents (one euro) today. Economist Costas Apostolides said AKEL was concerned that the government’s fiscal belt-tightening would hamper its «social justice» initiative to increase benefits and incentives for its working class supporters. «AKEL is worried about the presidential election (in 2008) and about monetary restrictions because they won’t be able to spend money on social programs,» he said. Cyprus had originally hoped to join the eurozone in 2007, but a huge public deficit proved an obstacle. It was as high as 6.3 percent of gross domestic product in 2003 but is estimated to fall below the Maastricht criterion of 3 percent, to around 2 percent this year. The EU sees the economy continuing to grow «solidly» at 3.8 percent over 2006 and 2007.