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News: Cyprus and Malta join the euro-party

Wed, 02 Jan 08

Cyprus and Malta have joined the Euro Zone, which is great news for property investors...

In the first major currency shift since the introduction of the Cyprus pound by former British colonial rulers in 1878, Cyprus joined the euro zone an hour before Malta, the other Mediterranean island which joined the European Union in 2004.

Officials hope admission to the euro zone can help bring together the economies of the divided island, split along ethnic lines since a Turkish invasion in 1974 triggered by a brief Greek-inspired coup.

"The foundation is laid for a unified economy with a common currency," President Tassos Papadopoulos said in a state address.

Use of the euro applies only to the southern part of Cyprus controlled by the island's internationally recognised Greek Cypriot government. The north, a breakaway Turkish Cypriot state recognised only by Ankara, will continue to use Turkish lira.

A new dawn

Les Calvert of Property Abroad commented: "When the euro comes in it will make the property market a lot more open and I expect the market to rise quite healthily”

The island of just under one million inhabitants represents 0.2 percent of the euro zone's GDP. To qualify for euro zone admission, Papadopoulos's administration successfully wrestled down budget deficits and tackled burgeoning public debt.

The island is slated to return a surplus - the first time since 1971 - of 1.5 percent of GDP in 2007 and a debt of 60 percent of GDP. In 2008, the surplus is expected to be 0.5 percent and public debt is forecast to fall to 48 percent.

"This is the dawn of a new era and a change to our way of life," said Papadopoulos.

The pound will cease to be legal tender in cash transactions at the end of January. From midnight Monday, businesses are obliged to use euros.

Authorities hope that within the first 15 days of January most Cyprus notes will be withdrawn from circulation. About 50 percent of coins will also be returned.

Investment boost

Cyprus is joining the euro zone with one euro trading for 0.585274 pounds. Adoption of the euro will boost investment, authorities said, although the primary market for its important tourism sector, Britain, is not in the euro zone.

Even though Britain has remained out of the euro mechanism, Tuesday's changeover is applicable to two pockets of sovereign territory London has retained on the island since granting Cyprus independence in 1960.

Inhabitants of the British-administered Sovereign Base Areas (SBA), including some 4,000 troops and 7,000 dependents, will use the euro in transactions
The Mediterranean island of Malta became the smallest member of the euro zone at the stroke of midnight on Tuesday.

The former British colony of some 400,000 people qualified for euro adoption after cutting its budget deficit from almost 10% of gross domestic product in 2003 to just over 2%.

It successfully overcame a last-minute struggle to rein in inflation caused by galloping oil prices, and in November Malta's annual inflation rate, at 2.9%, was running slightly below the euro zone average of 3.1%.

A Euro Changeover Committee has successfully allayed fears of inflation caused by euro adoption by reaching price-freeze agreements with most importers and retailers.

Historic day

Prime Minister Lawrence Gonzi and Malta Central Bank Governor Michael Bonello crowned the moment by withdrawing euro banknotes from an ATM.

"This is a historic day in the life of the country and if we face up to the challenge and exploit the new opportunities which monetary union offers, the step we are taking today should lead to stronger, more sustainable economic growth," said Bonello.

Malta and fellow Mediterranean island Cyprus became the 14th and 15th countries to enter the euro zone, having joined the European Union in 2004 with eight other countries.

Malta's exchange rate has been fixed at 0.43 lira to the euro since it joined the European exchange rate mechanism in May 2005.

Euro zone states are Malta's most important trading partners and euro adoption is seen benefiting its large tourism sector.

The opposition Labour Party, which had opposed EU membership for Malta, backed euro adoption and a public information campaign has been a widely acknowledged success.

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