of Cyprus Tassos Papadopoulos signs the EU Accession
Treaty on the 16th of April 2003 in Athens.
As it continues
its structural reform programme with a view to joining
the Eurozone in 2008, Cyprus is fast-becoming a model
Cyprus has responded to the
challenges of EU accession and its proposed entry
into the Eurozone by building an increasingly lean
and dynamic economy.
Whilst EU membership has brought much to Cyprus in
terms of security and confidence, the performance
of the Cypriot economy and the governments attempts
to build on the countrys key competitive advantages
are enhancing the countrys credibility.
Attempts to put its public
finances in order are paying off. In July this year,
the European Commission decided to remove Cyprus from
the EUs Excessive Deficit Procedure (EDP) making
it the first of the six new member states to fulfil
the provisions of the EUs growth and stability
pact. Joaquín Almunia, European Commissioner
for Economic and Monetary Affairs, commended Cypruss
commitment to fiscal discipline, commenting, The
Cypriot case shows that budgetary consolidation undertaken
with resolve can achieve sustainable results.
With a fiscal deficit of 6.25
per cent in 2003, Cyprus was placed on the excessive
deficit procedure along with six other new member
states in July 2004.
By 2005, the deficit of Cyprus
had been contained and fell to 2.4 per cent of GDP.
At the same time, the government debt-to-GDP ratio
decreased to 70 per cent. According to the European
Commissions forecasts, both deficit and debt
are expected to fall further, with the Cypriot government
targeting a 2 per cent deficit by 2007, allowing the
debt ratio to diminish progressively towards the 60
per cent of GDP threshold.
Crucially, this process does
not seem to have negatively impacted the countrys
impressive growth rates. GDP growth is projected to
remain at 3.8 per cent in 2006 and 2007, significantly
higher than the average of the EU25.
Minister of Finance
must be to become the link between the Middle
East and Europe’
President of the CCCI
foreign investors to buy into our banking sector
foreshadow wider changes’
These strong and encouraging financial results come
as a result of a range of measures introduced into
the tax system in the lead up to accession that brought
Cyprus fully in-line with all EU directives. One-off
incentives including a tax amnesty that offered
people the chance to legalise any undeclared money
that yielded CYP120 million (£140 million) over
two years - have been complemented by substantial
structural reforms taken by the Cypriot authorities.
By closing loopholes and improving
tax collection, the government has succeeded in raising
tax revenues without raising tax rates. The Inland
Revenue Department (IRD) reported a further 30 per
cent increase in revenue to CYP 305 million (£357
million) during the first half of 2006, underpinning
the administrations efforts to further reduce
the budget deficit.
JOINING THE EUROZONE.
The Cypriot government has shown focussed determination
to join the Eurozone and adopt the single currency
by 1st January 2008. Michalis Sarris,
Minister of Finance since September 2005 and a former
Director for the World Bank, insists that all the
indicators show Cyprus is on track to hit the deadline.
We are already fulfilling the Maastricht criteria
and we will make the deadline, he affirms. The
real challenges for us are rather preparing technically
and at the same time convincing people of the benefits
of changing our currency.
In a world of economic
imbalances and uncertainty, a small, open economy
is better served by being part of a wider monetary
union, he adds. Heading into the euro
is for us a way of reconfirming our commitment to
playing by the rules in terms of fiscal discipline
and laying the foundations for macroeconomic stability
as the basis for high economic growth.
UPSURGE IN INVESTMENT.
Accession to the EU has also led to increased investment
flows as Cypriot firms expand their operations abroad
and foreign, especially Greek, investors turn their
attentions to the island. An upsurge in mergers and
acquisitions activity saw it reach over CYP 380 million
(£445 million) in the first six months of 2006,
eclipsing the combined value of such deals made in
the previous three years.
President of the Cyprus Chamber of Commerce and Industry,
explains, We are changing from a small, isolated
and protected market to part of the largest integrated
market on the planet, and are witnessing moves that
were unthinkable before. For example, I strongly believe
that the moves by foreign investors to buy into the
Cypriot banking sector foreshadow changes in the wider
Mr Sarris believes that this
opening of the economy provides an important opportunity
for Cyprus. In the same way that Ireland has
become the United States springboard to the
rest of Europe, our ambition must be to become the
link between the Middle East and Europe. As a government,
we must ensure that regulation and legislation is
clear and that red tape is streamlined. Business must
not be inhibited by one permit too many, he
This falls in line with the
wider strategy of President Tassos Papadopoulos. Whilst
technical discussions with the authorities in the
Turkish occupied north of the island have again restarted
after being stalled for nearly two years, he insists
that the nations economic future remains his
governments primary concern. A healthy,
steady, strong and increasingly developing economy
is not only a factor for the progress and welfare
of our people but it also serves as a solid foundation
for our efforts to reunite our people and our country,