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Cyprus another step closer to Euro adoption

3rd May 2005 | back to article listings BACK    print this article PRINT

Cyprus, Malta and Latvia took another step closer to the adoption of the euro currency this weekend with the formal agreement to adopt the Euro by 2008, days after Tony Blair ruled out U.K. membership until after 2010 at the very earliest.
All three countries joined the EU on May 1st 2004. It is now necessary for the countries to adopt tough economic reforms in order to allow euro adoption and they must monitor their currency fluctuations in respect of the Euro and likely full adoption of the Euro in these countries will be late 2007 or 2008. With Cypriot interest rates well above the European Central Bank's historic low of 2.0 percent, the ERM-2 accession is bound to lead to rate cuts over the next two years, economists said. It will require the lowering of interest base rates to drop from the current 5% in Cyprus for example, to the 2% Euro zone rate over that period meaning real interest rates payable of around 3.3% as in the rest of Europe. If rates drop from 7.5% payable in Southern Cyprus for example to 3.3% then it is likely to have a big effect on property prices - some commentators are suggesting further 50%-100% price rises over the next 3-5 years as a direct result of these interest rate drops. Cyprus has a huge British visitor rate, the largest visiting country there each year, with already 1.4% of the Cyprus population made up of ex-pat brits.
Ten new countries, including eight from eastern Europe, joined the E.U. a year ago and are expected to swell the eurozone to at least 22 members by 2010 if they meet the entry criteria. These include a budget deficit of less than 3 per cent, a debt-to-GDP ratio of 60 per cent and inflation and interest rates close to those of the best performing economies in the eurozone. They must also keep their currencies within a plus or minus 15 per cent band around a central parity rate against the euro.
The four largest new EU members, Poland, Hungary, the Czech Republic and Slovakia, plan to adopt the euro in 2009-2010. All have relatively low debt and inflation, but all are above the 3 percent budget deficit limit this year and will be in 2006.

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