Cyprus submits Euro zone application

Cyprus submits Euro zone application

The application, signed by Cypriot Finance Minister Michalis Sarris and Central Bank Governor Christodoulos Christodoulou, was sent to the European Commission (EC) and the European Central Bank (ECB).

"Cyprus has indeed sent in a request for us to look at whether they are ready to join the Euro zone," said Amelia Torres, EU Monetary Affairs Commissioner Joaquin Almunia's spokeswoman.

The EC and the ECB are expected to issue a report by mid-May. Their conclusions will then be studied by the EU foreign ministers, who will make their recommendations prior to the EU summit in June. A final decision will be taken at the summit.

Cyprus joined the EU in May 2004, along with nine other Central and East European countries, and the European Exchange Rate Mechanism 2 -- the Euro zone’s waiting room -- in May 2005. Of the ten countries that joined the Union in 2004, Slovenia is the only one to have already joined the Euro zone, becoming its 13th member on January 1st this year.

Applicants must meet the so-called Maastricht criteria regarding inflation, government financing, the exchange rate and long-term interest rates. Cyprus meets all four criteria, Sarris said on Monday. "Those who evaluate us will surely agree that we have succeeded," the AFP quoted him as saying.

The Cypriot economy is expected to grow by about 3.9% this year, with inflation kept below 2.5%. Under the Maastricht criteria, the inflation rate must be no more than 1.5% higher than that in the EU's three best-performing member states.

An austerity program Cyprus has been implementing since 2004 has allowed it to reduce its budget deficit from above 6% of GDP to a projected 1.6% in 2007, the Greek Cypriot daily Financial Mirror reported on Tuesday. Euro zone member countries are obliged to make sure that their annual budget deficit does not exceed 3% of GDP.

At the end of this year, Cyprus's government debt is expected to be only 0.5% higher than the 60% of GDP ceiling currently in force within the Euro zone. Another beneficial effect they foresee is an increase in foreign direct investment.

"The distribution of euro coins will probably begin in October and banknotes will be allocated a month later," Christodoulou said. "Banks will subsequently supply businesses with the euro coins and notes."

He downplayed fears that the changeover will be followed by sharp price hikes, saying the experience in other countries showed prices typically increase between 0.1% and 0.3%.