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Cyprus on track to join 'euro-zone' as scheduled

Cyprus' euro-zone convergence targets are on track as the government seeks to reduce public debt and improve growth to ensure the island is ready to adopt the euro in 2008, the finance minister said Friday. "This year is crucial, as Cyprus will be assessed on its readiness to join the euro-zone," Michalis Sarris told a press conference to review the state of the economy.

Cyprus has set a goal of joining the euro-zone by January 1, 2008, and implemented an austerity drive to fulfill what the government deems a national priority.

Figures released by the minister show the convergence program is progressing in the right direction.

A key area is the fiscal deficit, which, estimated this year at under 2 percent of GDP, falls below the Maastricht criteria of three percent. It was as high as 6.3 percent in 2003.

The public debt will hopefully be reigned in to around 67 percent of GDP this year but needs to be at 60 percent in 2007.

Sarris promised to keep the deficit down without having to raise taxes or cut social benefits. GDP is expected to grow by 4.2 percent from 4 percent last year.

Moreover, Cyprus enjoys almost full unemployment, low inflation and interest rates and an "impressive" reduction of the fiscal deficit, said Sarris.

"We are determined to keep focused on these interrelated indicators."

Cyprus had hoped to join the euro-zone by 2007, but a huge deficit proved an obstacle.

Cyprus joined the ERM2 exchange rate mechanism, a two-year ante-room to euro adoption, in April 2005, almost a year after it became an EU member.

The island's largest party, Akel, says it wants to delay adoption of the euro by one year to ease the burden of transition on lower income earners.

Akel is worried that the austerity drive will hurt the poorer sectors of society in the rush to balance the books.

The main coalition partner in the government of Tassos Papadopoulos is seen as the party most skeptical of the euro on the island, although it backed EU accession.

There is a growing skepticism among Cypriots about the economic benefits of EU membership, as living costs are perceived as unnecessarily high.

Sarris disagreed that living costs had spiked, saying salaries had increased at double the rate.

"Compared to Europe, Cypriots enjoy a satisfactory standard of living and can buy more for their money with spending power reaching 84 percent of the EU average."

He said he was also confident Akel could be persuaded to back the euro campaign when convinced that the impact of the euro's introduction will be minimal.

Beirut,04 03 2006
Redaction
The Daily Star
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