Brussels, 16/05/2007 (Agence Europe) - In 2008, 15 countries will belong to the eurozone. This at any rate would be the case if the eurozone were extended to Cyprus and Malta on 1 January next, as the Commission and the European Central Bank (ECB) are proposing. The two countries applying to join the eurozone have reached a high level of economic convergence, Joaquin Almunia stressed on Wednesday, telling the press of his assessment of their compliance with the Maastricht criteria. The finance ministers will be looking at these convergence reports on 5 June, said the commissioner for economic and monetary affairs, confirming the timetable set. After endorsement by the heads of state and government at the European Council on 21 and 22 June, ministers will take a final decision during the Ecofin Council in July, on one hand authorising Cyprus and Malta to enter the eurozone and, on the other, establishing the fixed and irrevocable rate of conversion between the national currency and the euro. When it comes to practical preparations for changeover to the euro, Malta is doing “very, very well”, but Cyprus must do better, Mr Almunia stressed. The situation with regard to the different convergence criteria is as follows:
Inflation. Both countries have rates that are well below the reference value (3% during the twelve month period ending March 2007, with the average rate in Cyprus being 2% and that in Malta 2.2%). It should remain below the threshold required in coming months, the Commission notes, considering that these moderate levels should remain moderate after adoption of single currency. Both countries should remain vigilant in order to limit the inflationary impact, keeping an eye on how salaries develop, the Commission adds.
Budgetary situation. Taking a stance in favour of bringing the country out of excessive deficit procedure (see related article), the Commission has opened the road to having the euro adopted by Malta. It considers that La Valette has corrected its deficit in a credible and sustainable manner (2.6% in 2006 and 2.1% in 2007) and that its debt is now close to a satisfactory reference value rate (66.5% in 2006, 65.9% in 2007 and 64.3% in 2008). Also under the 3% threshold, the Cypriot deficit was 2.3% in 2005, 1.5% in 2006 and is expected to be 1.4% in 2007. Cyprus' debt is also on a downward slope, reaching 65.3% in 2006 and probably 61.5% in 2007, the Commission adds.
Exchange rate. Having joined the European Exchange Rate Mechanism (ERM II) on 2 May 2005 (EUROPE 8940), Cyprus and Malta took part in the system during the required two year period that is supposed to ensure exchange rate stability. The Cypriot pound and the Maltese lira have remained stable and have suffered no serious stress.
Long term interest rates. Here too, the level reached by both countries is clearly under the 6.4% reference value since EU membership in the case of Malta and since November 2005 in the case of Cyprus. During the year ending March 2007, the long-term average interest rate was 4.2% in Cyprus and 4.3% in Malta.
Legal compatibility. Both countries have also eliminated all incompatibilities in their legislation, to ensure the independence of the national central bank and respect of the statutes of the European System of Central Banks (ESCB). The laws in question were adopted by the Maltese and Cypriot parliaments on 28 February 2007 and 15 March 2007 respectively.
Slovakia, which joined the ERM II in November 2005, hopes to adopt single currency in 2009 (EUROPE 9392), while the Baltic States (Estonia, Lithuania and Latvia), which also belong to the mechanism, have revised their initial ambitions given the inflationary pressure they are undergoing. The Czech Republic, Hungary and Poland hope to have more time and do not yet foresee a date to meet their obligation of joining the eurozone. The capacities of Romania and Bulgaria will be assessed for the first time in 2008, when the next convergence report is due. (ab)