Cyprus prepares to lock currency with euro
2007-07-05
Cyprus is readying to lock the pound with the euro after which the official countdown will begin for the introduction of the common currency on January 1, 2008.
On Tuesday, 2007-07-10, the Council of Europe is expected to take the historic decision with a unanimous vote to lock the value of the Cyprus pound with the euro.
By the close of business Tuesday (2007-07-03), the CYP was steady at 0.5825-0.5840 against the euro and all indications suggest that the final rate at which the local currency will be locked with the euro will hover between 0.5840 to 0.585274.
This is the same rate at which the Cyprus pound entered into the ERM II on 2005-05-02, a year after Cyprus officially became an EU member.
If the final rate is fixed at 0.585274 or 1 CYP/EUR 1.7086, then it will also be the same rate at which on 1992-06-19 Cyprus unilaterally pegged its currency to the predecessor of the euro, the ECU. Since then, the Cyprus pound has always traded within the tight plus or minus band of 2.25% from the central rate, even though under the ERM II rules, the degree of fluctuation was plus or minus 15%.
Cyprus, Malta to join Euro Zone next week
2007-07-07
Cyprus and Malta will be formally approved for membership in the Euro Zone at the next meeting of European Finance Ministers (Ecofin) July 10, under the EU Portuguese presidency, government officials said.
With the approval of the legal accession mechanisms for Cyprus and Malta (the Euro Zone) will have 15 members, said Portuguese Finance Minister Teixeira Santos, as he entered a meeting of the Portuguese government and the European Commission in Porto, where the first working day of the Portuguese EU presidency is taking place.
The political decision for the accession of Malta and Cyprus to the Euro Zone was taken last month in Brussels, during the EU summit which ended the German EU rotating presidency.
The Ecofin meeting July 10, in Brussels, will be the first meeting chaired by the Portuguese finance minister.
PeakOil is You
Cyprus and Malta to switch to euro - Jan 2008
First unread post • 9 posts
• Page 1 of 1
Cyprus and Malta to switch to euro - Jan 2008
by Euric » Sat 07 Jul 2007, 13:05:09
-
Euric - Tar Sands
- Posts: 622
- Joined: Sat 04 Dec 2004, 04:00:00
Re: Cyprus and Malta to switch to euro - Jan 2008
by DantesPeak » Sat 07 Jul 2007, 14:49:04
Paging MrBill -
I'd like to see what MrBill thinks of this Euro zone expansion from his unique view point within Cyprus, but the moderators say he will be away for a few weeks.
I'd like to see what MrBill thinks of this Euro zone expansion from his unique view point within Cyprus, but the moderators say he will be away for a few weeks.
It's already over, now it's just a matter of adjusting.
-
DantesPeak - Expert
- Posts: 6277
- Joined: Sat 23 Oct 2004, 03:00:00
- Location: New Jersey
Re: Cyprus and Malta to switch to euro - Jan 2008
by MrBill » Mon 09 Jul 2007, 03:56:35
$this->bbcode_second_pass_quote('DantesPeak', 'P')aging MrBill -
I'd like to see what MrBill thinks of this Euro zone expansion from his unique view point within Cyprus, but the moderators say he will be away for a few weeks.
I'd like to see what MrBill thinks of this Euro zone expansion from his unique view point within Cyprus, but the moderators say he will be away for a few weeks.
I just got back from Egypt last night, but cancelled my business trip to London this week.
RE the Cypriot pound to the euro. This has been in the works for a long-time.
Basically, when the original 15-countries joined the EU (at various dates) they won exceptions to various core EU programmes, like the UK from the euro.
However, this does not extend to the last 10-members that joined the EU in 2004 like Cyprus and Malta. They are committed to 'ever closer political and economic union' of which fulfilling the Maastricht Criteria of EMU is one.
Slovenia has already joined the euro last year. Lithuania was for all intents and purposes ready, but were blocked as their inflation was a tick higher than the euro average. That was to be expected due to faster growth as the Baltic states play catch-up with core EU states.
Cyprus has had the pound linked to the euro for two years now. This is also a criteria. So the Cypriot pound was still in circulation, but the rate was fixed to the euro. Now on January 1st, 2008, pound notes and coins will disappear and be replaced by euro notes and coins just like in the rest of the eurozone in 2001. Those legacy currencies were linked to the euro in 1999.
Anecdotally, I think the Cypriots have linked their own currency to the euro at too high a peg.
One, most of the inward investment in Cyprus is linked to real-estate development and building. That can dry up anytime. Especially as it is linked to Russia and high commodity prices.
Second, European products on the supermarket shelves are already pricing out local products. If the CYP is too strong it opens a window for lower priced EU goods to flow in without too much competition.
For example, the EU already not only pays EU producers of wine to take land out of production, but they also buy wine and turn it into industrial alcohol at a loss. Economics would dictate that it is cheaper to sell that wine in Cyprus rather than destroy it or turn it into pure alcohol.
EU wines are already under-selling local wines, which are in many cases just as good for drinking. I fear that the trend of turning agricultural land into real-estate developments can only continue if you destroy the margins for farming.
Thirdly, retail space is not only cheap in Cyprus, but retail space tends to turn over very rapidly. It seems many stores stay in business for less that 6-months to a year before they close their doors. That may because there is not a lot of spending power here if most of the inward investment is in real-estate - second homes, vacation properties and retirement villas. Older people who are already established do not necessarily need to buy a lot to support the local furniture stores for example. They are usually savers, not spenders.
So I think Cyprus will struggle with a strong peg against the euro. It will be very hard for them to export from Cyprus in any case. On the other hand a strong currency is anti-inflationary, so they should avoid the problems of Italy, Spain, Portugal and Greece of inflation resulting from the switch to the euro.
From a wider perspective many new entrants to the EU are having trouble to fulfill some or all of the Maastricht Criteria, and in any case they should not be in such a rush to join the EMU because the euro takes away the flexibility of monetary policy. Fast growing countries that are developing faster than the mature economies of western Europe do not necessarily want to anchor themselves to a strong euro if it limits their ability to adjust to internal and external shocks to their country's competitiveness.
All in good time. What is important is that they work towards the monetary and fiscal stability as embodied in the Maastricht Criteria that limits budget deficits to 3% of GDP, total debt to 60% of GDP and inflation no higher than 1-2% above the EMU average. These are all laudible goals and worth doing in their own right. ERM takes away some sovereignty of individual member countries, but it also imposes discipline on them, while curbing populist politicians with their spending.
Italy, Greece, Spain and some others would not qualify (by a long shot) for EMU (euro) membership if they had to apply today, so many new members are already in better financial shape than some legacy countries. There is a lesson in that.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
-
MrBill - Expert
- Posts: 5630
- Joined: Thu 15 Sep 2005, 03:00:00
- Location: Eurasia
Re: Cyprus and Malta to switch to euro - Jan 2008
by DantesPeak » Mon 09 Jul 2007, 09:14:07
Thanks MrBill.
This make me wonder what benefits Cyprus sees here. I suppose they are thinking long term about the EU, and recognize that in the short run it will be disruptive to business. However with a small economy, it may be difficult to make the adjustment.
This make me wonder what benefits Cyprus sees here. I suppose they are thinking long term about the EU, and recognize that in the short run it will be disruptive to business. However with a small economy, it may be difficult to make the adjustment.
It's already over, now it's just a matter of adjusting.
-
DantesPeak - Expert
- Posts: 6277
- Joined: Sat 23 Oct 2004, 03:00:00
- Location: New Jersey
Re: Cyprus and Malta to switch to euro - Jan 2008
by MrBill » Mon 09 Jul 2007, 10:26:16
$this->bbcode_second_pass_quote('DantesPeak', 'T')hanks MrBill.
This make me wonder what benefits Cyprus sees here. I suppose they are thinking long term about the EU, and recognize that in the short run it will be disruptive to business. However with a small economy, it may be difficult to make the adjustment.
This make me wonder what benefits Cyprus sees here. I suppose they are thinking long term about the EU, and recognize that in the short run it will be disruptive to business. However with a small economy, it may be difficult to make the adjustment.
I do not mean to be glib, but to be honest, I really do not think they thought long and hard about EU membership at all?
That may sound harsh, but politics here is dominated by a few personalities (and the church, of course). They have kept the reunification of the island on ice for ages. Absolutely no progress at all.
I guess they figured that EMU was a bonus for Greece, so it would be good for Cyprus? Different fundamentals though.
I think they definitely felt they could get leverage over Turkey from within the EU? And they have achieved that.
Maybe they wanted to monetize their real-estate wealth by ensuring the value of the pound did not plummet later, but was anchored to the euro? If you have wealth, you are more worried about it losing value than making new business.
Also, during the Cold War, Cyprus was alligned with the Soviet Union. After the collapse, maybe they looked to the EU as their new sponsor? They have certainly gotten a lot of EU seed money for infrastructure projects since.
Maybe just a lot of reasons and we try to read more into them than there are? I do not think a small country of 600.000 (800.000 with N. Turkey) needs its own central bank or currency. Better to outsource those functions.
I just feel they fixed their currency too high. But again if you have wealth, you do not want inflation eating away at its buying power. So good for those that have.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
-
MrBill - Expert
- Posts: 5630
- Joined: Thu 15 Sep 2005, 03:00:00
- Location: Eurasia
Re: Cyprus and Malta to switch to euro - Jan 2008
by MrBill » Wed 11 Jul 2007, 08:48:00
Sorry, I have to move this topic to Open Discussions as it is not related to peak oil depletion economics.
Some background reading for those who are interested.
The would-be euro candidates....
$this->bbcode_second_pass_quote('', 'T')he country that most troubles outsiders is Latvia. It has a whopping current-account deficit: some 21% of GDP in 2006, and bigger still so far this year. That reflects soaring consumption and household debt, financed mainly by foreign-owned banks. Wages are rocketing—up by a third year-on-year. Inflation is over 8%.
This points to a need for tough restraining measures. But the currency, the lats, is pegged to the euro, so the central bank's ability to raise interest rates is constrained. Although the IMF issued a sharp warning in May about the need for a fiscal squeeze, the government is keener on harvesting the dividends of double-digit GDP growth than on acting to avert the risk of a crash.
Some background reading for those who are interested.
The would-be euro candidates....
$this->bbcode_second_pass_quote('', 'T')he country that most troubles outsiders is Latvia. It has a whopping current-account deficit: some 21% of GDP in 2006, and bigger still so far this year. That reflects soaring consumption and household debt, financed mainly by foreign-owned banks. Wages are rocketing—up by a third year-on-year. Inflation is over 8%.
This points to a need for tough restraining measures. But the currency, the lats, is pegged to the euro, so the central bank's ability to raise interest rates is constrained. Although the IMF issued a sharp warning in May about the need for a fiscal squeeze, the government is keener on harvesting the dividends of double-digit GDP growth than on acting to avert the risk of a crash.
Source: Eastern Europe's economies
And the myth of a two-speed Europe.
$this->bbcode_second_pass_quote('', 'U')nexpectedly, Charlemagne has been reminded of these frustrated voters in the past few days, as a string of European Union leaders have declared that a “two-speed Europe” is at hand. This is a code phrase meaning that a hard core of enthusiastic states must now push ahead with more integration, leaving backmarkers in the rest of the 27 to catch up if they wish. It is stirring stuff, but there is a small problem. Just as France is in no hurry to annex southern Belgium, so there is no sign of a workable inner core of integrationists. Contemplating the squabbles at the EU summit last month, one senior official comments sardonically that “you could find a pioneer group for going backwards, but for going forwards? I don't think there is one.”
source: Revived threats of a two-speed Europe need not be taken too seriously
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
-
MrBill - Expert
- Posts: 5630
- Joined: Thu 15 Sep 2005, 03:00:00
- Location: Eurasia
