Interest rates rise

An unexpected quarter-point increase in interest rates - the first since September 2006 - was announced by the Monetary Policy Committee of the Central Bank of Cyprus (CBC) on 12 March, lifting the Lombard marginal lending facility to 4.75 per cent and the overnight deposit rate to 2.75 per cent. In contrast, the CBC’s key rate for refinancing operations, governing current market rates for deposits and loans, was left at 4.5 per cent.

A CBC statement said that the decision “was driven solely by technical reasons” in order to remain in line with the respective rates of the European Central Bank. The aim, said the CBC, was gradually to establish a one percentage point gap between the refinancing rate and the other two rates, as required by euro-zone rules.


House approves euro adoption bills

Four bills establishing the legal basis for Cyprus to adopt the euro on the Government’s target date of 1 January 2008 were duly approved by the House of Representatives on 15 March, although not before a last minute scare that the legislation might be derailed by the opposition Democratic Rally (DISY), despite its support for the euro.

The four bills were adopted by 36 votes to 15, with DISY in the event voting in favour together with the Democratic Party (DIKO), the EDEK Social Democrats, the European Party (EVROKO) and the single Ecologist MP. The votes against came from the leftwing party AKEL, which continued to argue that entry into the euro-zone should be delayed for a year to allow time for social welfare provisions to be strengthened.

The legislation completed the convergence of the Central Bank of Cyprus with the European System of Central Banks and established the framework for a smooth transition to the new currency. It dealt in particular with the conversion process, transitional dual circulation, pricing and measures to combat unjustified consumer price increases at the time of the switch.

DISY’s doubts about the legislation had been expressed on 8 March after AKEL had confirmed that its MPs would vote against. Deputy leader Averof Neophytou questioned the fact that the largest party in the pro-euro ruling coalition was not going to support the legislation. However, DISY leader Nicos Anastasiades subsequently confirmed that the party had received satisfactory assurances from the Government that the transition to the euro would be smooth.

President Tassos Papadopoulos welcomed the vote as “the best message” from the parties “irrespective of any disputes regarding the date of implementing the plan”, noting that “all parties want to co-operate to minimize any difficulties or negative impacts”. He added that the Government had fulfilled its duty to provide the legal framework and tools for the switch to be fair and that it was now up to organizations and citizens to assert their rights effectively.

The House decision was also welcomed by the European Commission (EC) in Brussels, where a spokeswoman described it as a “positive fact”. She explained that Cyprus’ application to join the euro-zone, submitted in February, was being evaluated by relevant EC bodies with a view to a recommendation being submitted to EU Finance Ministers. The final decision, she added, would be made by the European Council in June.

•    Finance Minister Michalis Sarris and CBC Governor Christodoulos Christodoulou on 6 March announced an intensification of the information campaign on the changeover to the euro. They said that the campaign would focus in particular on vulnerable groups such as the retired and elderly, small businesses, the rural population, resident foreigners and “our Turkish Cypriot compatriots”, with the aim of preparing Cypriot society as a whole for the transition.


Cyprus Airways plan approved

The long-awaited authorization by the European Commission (EC) of the Government’s financial restructuring plan for ailing national carrier Cyprus Airways (CA) was finally given on 7 March. A statement in Brussels said that “following an in-depth investigation, the Commission has decided that the plan is in line with EU rules on the rescue and restructuring of firms in difficulty”.

The Government, as the majority shareholder in CA, had submitted its plan for a C£70 million support package to Brussels in November 2005, as the airline teetered on the verge of collapse because of record losses. The sale to the Government in November 2006 of CA’s Eurocypria charter subsidiary for C£13.4 million was part of the package. The EC’s green light meant that the balance could now be raised in the form of a Government-backed loan and a capital increase.

CA had made some progress in 2006 on the cost-cutting elements of the restructuring plan, involving job losses and salary reductions for pilots and other highly paid staff. Together with the Eurocypria sale, these enabled the company to reduce its losses by a third in 2006, to C£7.2 million, while revenue increased by 11 per cent to C£157 million.


Property warning

A warning that foreign companies selling or buying Greek Cypriot properties in the Turkish-occupied north without their owners’ consent would be barred from the Government-controlled area was given on 19 March by Interior Minister Neoklis Silikiotis. He was speaking after talks with the US Ambassador to Cyprus, Ronald Schlicher, on the interest of US real estate companies in doing business in Cyprus.

Mr Silikiotis explained that under legislative amendments being enacted to bring Cyprus into line with the EU acquis communautaire, real estate companies would have to comply with certain requirements, such as only employing registered estate agents and having at least one Greek-speaking employee. It was therefore self-evident, he stressed, that “companies which engage in the illegal sale or purchase of Greek Cypriot properties in the occupied areas cannot be allowed to operate in the Republic of Cyprus”.