Support for euro expected to grow

Confidence that public support for Cyprus' adoption of the euro would grow as the target date of 1 January 2008 came nearer was expressed by Finance Minister Michalis Sarris on 5 April. He pointed out that a Laiki opinion poll showing that opposition to euro entry had grown sharply to 51 per cent of Cypriots had been conducted before the Government's information campaign was properly underway.

Speaking to journalists in Nicosia, Mr Sarris said that he expected support for the euro to grow and for the doubts to disappear once Cypriots start using the new currency. He attributed much of the current negative opinion in Cyprus to the experience of Greece, where adoption of the euro in 2001 had triggered substantial price rises. That danger would be averted in Cyprus, he insisted, because the Government's national changeover plan included measures to prevent unjustified consumer price increases.

Mr Sarris confirmed that, subject to Cyprus' euro application being approved by the European Council in June, the parity of the Cyprus pound would be formally fixed against the euro on 10 July. This step would mark the official start of the countdown to the switch at the start of 2008.

Asked how the Government would respond to party pressure for a relaxation of its tight fiscal policy in advance of the February 2008 presidential elections, Mr Sarris stressed that there would be no "pre-election gifts". Instead, the Government would continue its budget deficit reduction strategy, whilst ensuring that social benefits were targeted on those who really needed them.

•    The current German Presidency of the EU issued a statement on 24 April reaffirming that the decision on Cyprus' application to join the euro-zone would be based exclusively on the economic criteria laid down in the Maastricht Treaty. The statement followed a reported remark by the German Finance Minister, Peer Steinbrueck, that Cyprus' euro accession might have political repercussions and should therefore be considered at a political level.


Praise for plans to absorb EU funds

EU Regional Policy Commissioner Danuta Hubner, speaking at a joint press conference with Finance Minister Michalis Sarris in Nicosia on 17 April, praised Cyprus for its plans to absorb EU funding in 2007-13 and for its use of funds received since 2004. Some €640 million in EU structural funds will be available to Cyprus over the 2007-13 budget cycle, plus €160 million from the Agricultural Development Fund. Earmarked for infrastructure works and human resources development to increase competitiveness, the EU funds are expected to be boosted to €1,000 million by complementary investment by the Cyprus Government.

Having inspected projects already in receipt of EU funding and having examined the Government's plans for 2007-13, Ms Hubner stressed the importance of ensuring that every available euro was utilized. She continued: "We need a lot of excellent projects, and the pleasure for us in Brussels is to see that there is a strategy on the Cyprus side, that there is a policy and definite shift towards the most important type of investments for the future of Cyprus, which is not only investment on infrastructure but also increasingly investment in what creates a competitive and innovative economy."

Ms Hubner paid particular tribute to Mayor of Nicosia Eleni Mavrou for her "excellent projects" to renovate and revitalize the divided capital, if possible in co-operation with the Turkish Cypriots. "With these small steps", said the Commissioner, "we can make Nicosia a great European city." She added that it was important for Cyprus' mostly small municipalities to work with one another in the quest for EU funding.

During her visit, Ms Hubner addressed a seminar on EU funding opportunities for small and medium-sized enterprises (SMEs) held in Limassol on 16 April as part of a Government-sponsored publicity campaign to inform social partners of the funding available. She noted that "many Cypriot researchers and innovators are today working abroad because the opportunities in the country are limited". This was why, she said, it was necessary in the 2007-13 programming period to create high-value jobs to match Cyprus' high level of education and to target investment on centres of excellence such as the new Limassol University of Technology.

On the role of SMEs, Ms Hubner said that EU support was available for them to invest in research and development and to benefit from technology transfer. If SMEs did not have the capacity to carry out research themselves, "they should be able to access more easily research which is carried out in publicly funded research institutions". Another priority, she said, should be to increase the availability of capital for new business start-ups in the form of micro and medium-sized enterprises.

•    The European Commission announced on 13 April that contribution of Cyprus to the EU budget for 2006 had been reduced by €2 million because of a surplus of €1,848 million arising from non-use of allocated resources and higher than forecast revenue receipts across the EU. The biggest reductions in national contributions as a result of the surplus were obtained by Germany (€366 million), the UK (€308 million) and France (€291 million).


Budget supplemented

The Government on 16 April tabled a supplementary 2007 budget providing for expenditure of C£16,306,809 above the C£4.07 billion contained in the main budget as approved in December 2006 (see CN 12/2006). The additional spending was to pay for a net increase of 567 in Civil Service numbers, arising from the creation of 669 new posts and the abolition of 102.

According to data provided to the House of Representatives, the Civil Service grew by 27 per cent in the decade to 2005, in which year annual salaries accounted for 18 per cent of GDP compared with an average of 12 per cent in the EU25 (i.e. excluding new entrants Bulgaria and Romania). The cost of the salaries represented 34 per cent of the total state expenditure in 2005, as against an EU25 average of 22 per cent.