Financial Governance Issues May Delay Cyprus’s Euro Entry

by Lorys Charalambous, Tax-News.com, Cyprus

07 January 2005

Cyprus’s hope of joining the European Exchange Rate Mechanism in the first quarter of 2005 may suffer a setback due to concerns by EU officials that not enough has been done to right the wrongs of past financial scandals, according to island newspaper, the Financial Mirror.

While Cyprus appears to be on course to meet the economic criteria for joining the single currency, the FM has learnt that concerns persist over the country’s ability to meet the so-called soft criteria, with the scandals still fresh in the memories of many.

"On this matter it is difficult to see that Cyprus will be ready," one EU diplomat told the publication.

Past issues that have come under particular scrutiny from the EU are the controversy surrounding the Cyprus stock market crash in 2000, which left many ordinary investors indebted, and the supposed laundering of money through the Cypriot banking system by the regime of former Yugoslavian leader Slobodan Milosevic.

EU officials are said to be concerned about a lack of action by the Cypriot authorities to ensure that measures are in place to prevent the future occurrence of such events. It is thought that this could weigh heavily on Brussels' decision to admit the country into the ERM, and eventually the eurozone, which Cyprus hopes to enter by 2008.

"From an economic point of view, everything is OK. The rate of growth is satisfactory, the fiscal side is on track and the tax reform has been successful," the EU diplomat explained.

However, the official added: "But the question remains: is the financial framework for all the different areas tough enough? How deeply are the authorities committed to, first prevention, and then taking action. And do they have the competence to act? Unfortunately there are a lot of papers but not much evidence that tougher rules are being applied."

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