Brussels green light for Euro entry

The Government welcomed the European Commission’s 2007 Convergence Report on Cyprus published on 16 May, particularly its recommendation that Cyprus fulfils all the criteria for joining the euro-zone on 1 January 2008. Presenting the report, EU Commissioner for Economic and Monetary Affair Joaquin Almunia said that he was “absolutely convinced” that Cyprus’ entry, together with that of Malta, would be approved by EU leaders at their June summit in Brussels.

Sr Almunia said that there were “no legal doubts” about the Government controlled area of Cyprus adopting the euro, adding that if and when reunification was achieved the whole island would be under the acquis communautaire and the economic consequences would be assessed. He also confirmed that the EC was opposed to any move by the Turkish-occupied area to adopt the euro unilaterally.

The EC report noted that the average inflation rate in Cyprus in the year up to March 2007 was 2 per cent, well below the euro-zone reference rate of 3 per cent. Having improved on the reference rate since August 2005, said the report, Cyprus was likely to continue doing so in the period ahead, although the Government needed to remain vigilant against inflationary factors.

On the budgetary situation, the report noted that Cyprus’ fiscal deficit had been reduced to 1.5 per cent of GDP in 2006 (from 2.3 per cent in 2005), well below the euro-zone ceiling of 3 per cent. A deficit of 1.4 per cent was expected in 2007, followed by one of only 0.5 per cent in 2008. The report also recorded that the level of public debt had been on a declining path since 2005, falling to 65.3 per cent of GDP in 2006 and to a projected 61.5 per cent in 2007.

Other positive factors recorded in the report included the strong performance of the Cyprus pound since it joined the EU’s exchange-rate mechanism (ERM) in May 2005, consistently trading in the upper half of the permitted fluctuation band. The report also noted that longterm interest rates in Cyprus had averaged 4.2 per cent in the year to March 2007, as against the euro-zone reference rate of 6.4 per cent.

Addressing a trade union conference in Nicosia on 16 May, President Tassos Papadopoulos described the EC’s green light for Cyprus’ euro entry as “a very important achievement”. He praised Cypriot workers for the self-restraint they had shown to enable Cyprus to meet the convergence criteria and promised that a package of new social benefits would be announced shortly.

The European Central Bank issued its own report on 16 May confirming that Cyprus was qualified for the euro, notably in that the statutes of the Central Bank of Cyprus had been made compatible with EU law. In cautionary passages, the report said that Cyprus must “improve its fiscal performance by tangibly reducing its high debt ratio” and maintain moderate wage growth.


First oil licences expected by year’s end

Foreign Minister George Lillikas stated on 17 May that he expected the first licences for oil and gas exploration in the Cypriot sector of the Eastern Mediterranean to be issued by the end of 2007. The Cyprus Government had launched a licensing round in February for 11 of the 13 blocks in the 70,000 sq km Cypriot southern offshore sector, where research has indicated that hydrocarbon reserves exist.

Speaking during an official visit to Warsaw, Mr Lillikas said that he expected that the Government would start to analyse tenders from oil companies for the blocks in late September or early October, with the aim of granting the first exploration licences before the end of the year. He expressed the Government’s hope for “promising and positive” results, so that Cyprus would in due course be able to contribute to the energy security of the European Union.

President Tassos Papadopoulos on 8 May condemned the declared intention of Turkey to grant licences for oil and gas exploration in the offshore sector around Cyprus as illegal under international law. He said that he did not expect the Turkish move to affect the Government’s plans, as the interest of international oil companies in bidding for blocks in the Cypriot sector had not been affected.