ECONOMY

Cyprus is on track to adopt euro next year

NICOSIA (Reuters) – Cyprus’s ambitions of adopting the euro in January 2008 are on track with the economy performing better than expected and the budget deficit falling, President Tassos Papadopoulos said yesterday. The island is pursuing an austerity program to keep its deficit below 3 percent of gross domestic product and cut its public debt to below 60 percent of GDP – both key indicators in testing whether an economy is ready to join the eurozone. «Our economy has been performing better than expected,» Papadopoulos told foreign correspondents. «We hope to close the accounts of 2006 with a deficit of 1.5 (percent) and our public debt, which when we assumed (government in 2003) was 72 percent, is now lower at 64 percent and hopefully will soon be below 60.» His remarks mean the budget deficit in Cyprus, a European Union member since 2004, has come down faster than expected, since earlier projections had been for the shortfall to come out at 1.9 percent of GDP for 2006. In response to a question, Papadopoulos also said a devaluation of the Cyprus pound was «out of the question» ahead of adoption of the euro. «The Cyprus pound has for the past 32 months been trading higher than the euro. All indications are against any suggestion of a devaluation. There is no such question.» If it is deemed ready, the Cyprus pound, which entered the EU’s exchange rate mechanism ERM-2 in 2005, will be locked against the euro at an irreversible exchange rate for conversion purposes in mid-2007. AKEL, the island’s powerful communist party and main partner in Papadopoulos’s center-left governing coalition, has previously floated the idea of postponing eurozone admission until 2009. It says a delay would buffer the economy better from shocks and enable better preparation for the changeover. The debate has been simmering for almost a year but it has not evolved into a fully fledged dispute within Papadopoulos’s administration. While not referring to AKEL directly, Papadopoulos said his administration would be able to meet its eurozone commitments and maintain its social ones, a euphemism for generosity in government handouts. «You cannot choose when to join. You can only choose when you can ask the EU to monitor (government) accounts and approve it joining… it is not a question of us postponing it for one year,» he said. In December the European Central Bank and the European Union’s executive Commission assessed that Cyprus met three of the five eurozone criteria. It said it was close to fulfilling the remaining two on harmonizing central bank legislation and foreign exchange stability.