What's New in the EU: Cyprus adopts euro

Survey results show that the Cypriot enterprises are well prepared for the changeover and have not experienced any major problems.

euro symbol 88 (photo credit: )
euro symbol 88
(photo credit: )
Our neighbor Cyprus, together with Malta, adopted the euro on Tuesday, bringing to 15 out of the 27 EU countries and a population of 320 million out of the EU's total of 495 million that share the same currency. 2008 will mark the second enlargement of the euro area since 2002 - Slovenia having already adopted the single currency on January 1, 2007. Banks and enterprises in these countries received supplies of euro banknotes and coins to be able to handle transactions in euro as of January 1. Euro coin mini-kits have also been available for citizens since early December, to help them familiarize themselves with their new currency before €-day. Cyprus Commercial banks started receiving euro coins from the Central Bank of Cyprus on October 22, and euro banknotes on November 19. The Central Bank of Cyprus estimates that the banking sector was supplied with approximately 80 percent (in value rather than volume) of all euro banknotes needed for the national economy before January 1, and 64% of the necessary coins. Businesses, notably retailers, received euro cash from their banks in advance. This ensured that they can give change exclusively in euro from day one and should help speed up the cash changeover. Moreover, since December 3, 40,000 pre-packed euro coin starter-kits for businesses (worth €172 each) and 250,000 mini-kits for the general public (worth €17.09 each) have been on offer. Recent survey results indicate that the Cypriot enterprises are well prepared for the changeover and have not experienced any significant problems. About 7,130 businesses, including larger retailers and banks, are participating in a Fair Pricing Code launched by the government in July 2007, whereby they commit to behaving fairly and not to seek advantage from the changeover. A logo displayed on shop windows attests to their adherence to the code. The dual display of prices in the Cypriot pound and euro has been compulsory since September, helping consumers to get used to the new scale of values. Its implementation is monitored by five Euro-Observatories whose inspectors regularly visit retail outlets throughout Cyprus. The Ministries of Finance and of Commerce and Industry monitor price developments in cooperation with the statistics office and consumers' associations. Malta The front-loading of the banking sector with euro cash by the Central Bank of Malta started in mid-September. The Central Bank estimates that about 92.5% (again, in terms of value rather than volume) of the 41.5 million euro banknotes that are needed to replace the Maltese lira were supplied to banks before January 1, 2008, as well as 71% of the 140 million euro coins needed in the Maltese economy. The supply of euro cash to the business sector started on December 1. Moreover, 33,000 euro starter-kits for businesses (worth €131 each) and 330,000 mini-kits for the public (worth €11.65) have been available since December 1 and 10, respectively. Because Malta has a particularly high level of cash in circulation, the Central Bank has for several months been encouraging the public to deposit excess cash with banks, to reduce the volume of cash to be exchanged after €-day. The national cash in circulation, which will be returned to the Central Bank from January 1, is estimated to amount to approximately 37 million banknotes and 128 million coins. Why euro? When the EU was founded in 1957, the member states concentrated on building a "common market" for trade. However, over time it became clear that closer economic and monetary cooperation was needed for the internal market to develop and flourish further, and for the whole European economy to perform better, bringing more jobs and greater prosperity for Europeans. In 1991, the member states approved the Treaty on European Union (the Maastricht Treaty), deciding that Europe would have a strong and stable currency for the 21st century. The benefits of the euro are diverse and are felt on different scales, from individuals and businesses to national economies and the European Community at large. The benefits arguably include: * More choice and stable prices for consumers and citizens; * Greater security and more opportunities for businesses and markets; * Improved economic stability and growth; * More integrated financial markets; * A stronger presence for the EU in the global economy. Many of these benefits are interconnected. For example, economic stability is good for a member state's economy since it allows the government to plan for the future. But economic stability also benefits businesses because it reduces uncertainty and encourages companies to invest. This, in turn, benefits citizens who see more employment and better-quality jobs. Before the euro, the need to exchange currencies meant extra costs, risks and a lack of transparency in cross-border transactions. With the single currency, doing business in the euro area is more cost-effective and less risky. Meanwhile, being able to compare prices easily encourages cross-border trade and investment of all types, from individual consumers searching for the lowest cost product, through businesses purchasing the best value service, to large institutional investors who can invest more efficiently throughout the euro area without the risks of fluctuating exchange rates. Within the euro area, there is now one large integrated market using the same currency. On the other end, a national currency is one of the things that define a character of a nation. A common currency weakens the independence of each member state, which is part of the euro. [email protected] The author is head of the International Department at the Joseph Shem-Tov law firm.