ECONOMY

Cyprus to enter eurozone in 2008

BRUSSELS/FRANKFURT (Reuters) – Cyprus and Malta received the green light to join the eurozone from key European Union institutions yesterday, clearing their way to adopt the world’s second most widely used currency next year. The European Commission and the European Central Bank said the two small Mediterranean islands were ready for the euro, which is shared by almost 320 million people in 13 countries. While Malta’s and Cyprus’s eurozone membership still has to be approved by EU finance ministers, EU heads of state and government and the EU Parliament, their backing is certain. «I hope that on January 1, 2008 these two new members of the euro area will sit in the Eurogroup and the governors of their central banks will be members of the Governing Council of the ECB and their citizens will use the euro as their own currency,» Economic and Monetary Affairs Commissioner Joaquin Almunia said. To win the support of the EU executive and the ECB, both countries, which four decades ago shook off British rule and in 2004 joined the EU, had to pass tests on inflation, interest rates, budget deficits, public debt and currency stability. Their average annual inflation over the last 12 months was below the euro-entry ceiling, set at 3 percent on the basis of price growth in the three countries with the lowest rates in the EU – Finland, Poland and Sweden – plus 1.5 percentage points. Their interest rates were below the entry ceiling of 6.4 percent, their budget deficits are below the 3 percent of GDP threshold and debt is on a declining path. Their currencies – the Cypriot pound and Maltese lira – have been stable over the last two years in the Exchange Rate Mechanism II, the currency stability test for joining the euro. The two islands will add 1.2 million citizens and 0.2 percent to the eurozone’s -8 trillion economy. Their major industry is tourism. Final OK seen in July Almunia would not speculate on the economic impact of a potential reunification of Cyprus – a challenge pointed out by the ECB. He said the Commission had thought of various scenarios but would not comment since the timing and conditions of such a move were not known. The Commission and ECB recommendations will now go for initial endorsement by EU finance ministers on June 5. They will then be discussed by Parliament and EU leaders on June 22. «I am absolutely convinced that on June 22 the European Council will take the decision that Cyprus and Malta will from January 1, 2008 be members of the eurozone. No question about it as far as I am concerned,» Almunia told a news conference. On July 10, EU finance ministers will give the applications a final stamp of approval and set the rate at which the Cypriot pound and the Maltese lira will be exchanged for the euro.