Cyprus cannot delay eurozone entry, says the governor of its central bank

NICOSIA (Reuters) – Cyprus’s central bank governor said yesterday that the island nation could not afford to delay its eurozone admission target beyond 2008, as advocated by a senior partner in Cyprus’s center-left coalition government. «Our admission to the eurozone is not only a one-way street, but it is one we cannot postpone,» Christodoulos Christodoulou said. Speaking at a news conference, Christodoulou also said he was worried whether Cyprus could sustain a recent improvement in its public finances and said reforms were required. «Their spectacular improvement in the past two years is, in part, the result of circumstantial factors and short-lived favorable conditions,» he said. Cyprus launched an 18-month media blitz on May 31 targeting January 1, 2008 as its euro admission date, but it was tempered by a call on the same day by AKEL, the leftist senior partner in the ruling coalition, to consider a delay to 2009. AKEL, which lost ground in recent parliamentary elections, has played on public concerns over inflationary pressures from adoption of the euro. The targeted changeover would coincide with a scheduled VAT increase on certain items. The party has also said that a delay would enable the government to be more «generous» in its social spending and better prepare the public for the change. «Adoption of such an option would lead to a deterioration of public finances, widening expenses without increasing revenue,» said Christodoulou. Cyprus is engaged in a stringent drive to keep its budget deficits below the 3 percent of GDP threshold, one of several economic conditions required by the European Union for eurozone applicants. It forecasts a deficit of 1.9 percent of GDP in 2006, narrowing it down to 1.2 percent in 2008.