Cyprus And Malta Ready To Adopt The Euro By End Of Decade, Says Study

by Lorys Charalambous, Tax-News.com, Cyprus

16 April 2004

Malta and Cyprus will be ready to join the European Monetary Union by 2009, according to a recently published paper by ratings agency Standard & Poor’s.

“Fiscal deficits in 2004 will still be considerable, but planned consolidation should allow for fulfilment of the fiscal criteria by 2007," noted S&P’s analysis. However, the accession states will be expected to adhere to the tight parameters of the European Exchange Rate Mechanism before being permitted entry into the single currency.

Four of the accession states, Estonia, Latvia, Lithuania and Slovenia, are anticipated to achieve the convergence criteria by 2007, whilst Poland and the Czech Republic will attain this slightly later in 2010, according to the ratings agency.

On the fiscal side, S&P argues that the ten acceding states are likely to have little room to bring down deficits by raising tax revenues upon joining the EU.

“In fact, most ACC-10 countries forecast declines in their tax revenue-to-GDP ratio in the medium term, largely reflecting the impact of ongoing cuts in direct taxes, or plans to implement such cuts in the near future.”

The ratings agency also suggested that tax productivity was still low in the accession states and many countries would benefit from reducing the tax wedge on labour to boost employment creation, and in turn, increase their tax take. However, the summary concluded that on balance, the effect of EU membership on tax revenues in the new states is likely to be moderate.

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