Contrary to recent reports, it appears unlikely that Cyprus will be accepted into the ERM2 (European Exchange Rate Mechanism), the first step towards the country's full adoption of the euro, as early as the forthcoming weekend.
Speculation that Cyprus, along with Malta and Latvia, would be permitted entry into the ERM2 was prompted by the revelation that a special committee of finance ministry and central bank officials was meeting in Brussels on Thursday and Friday.
Quoting senior sources from the Central Bank of Cyprus, local publication the Financial Mirror claimed that the decision would be taken over whether Cyprus will join the ERM at the weekend, before being allowed to begin officially trading within the CYP/EUR peg as early as May 2.
However, the Central Bank on Wednesday issued a stern denial that it was privy to such information.
"With reference to an article in a weekly newspaper, which is attributed to so-called Central Bank sources, and in accordance with which the entry of Cyprus and two other member states of the European Union into the Exchange Rate Mechanism II is imminent, the Central Bank of Cyprus officially announces that it has no knowledge or information on the issue," the bank said in a statement.
The Cypriot government had hoped to be allowed into the ERM2 early in 2005, with a view to adopting the single currency by 2008. Cyprus still hopes to enter ERM2 by August at the present target rate of 0.5853 pound to the euro.
Once inside the ERM, the value of the Cyprus pound will be allowed to fluctuate by 15% above or below this peg with the euro, and the currency will need to be tied to the exchange rate mechanism for a minimum of two years prior to full convergence.
The plan depends on the government’s ability to bring the budget deficit back to more acceptable levels through cuts in expenditure and increases in tax revenues. The government has pledged to cut its deficit to 2.9% in 2005 from 4.2% last year.
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