Global Economics

Smooth Euro Switch for Cyprus and Malta


The Mediterranean islands' changeover to the European common currency wins praise from Brussels, but inflation remains a threat

The European Commission has praised the smooth changeover to the euro in the two newest eurozone member countries, Cyprus and Malta, while the effect on their overall inflation rates is to be evaluated later.

The two Mediterranean islands switched to the common European currency on 1 January, joining 13 other EU states that use with the euro.

According to an early survey by the EU executive, presented on Thursday (4 January), "all available evidence suggests that the changeover operation is proceeding very smoothly and without any noteworthy incidents."

The data showed that on 2 January, retailers gave change exclusively in euro in 92 percent (Cyprus) and 91 percent (Malta) of all cash transactions, although in Malta there were a few initial cases of shortage of change at retail outlets.

These shortages were particularly apparent on the very first day of the euro in the country, as banks were still closed and some customers were using up large amounts of Maltese lire banknotes to avoid having to exchange them at banks later.

The commission's survey also revealed that 42 percent of Maltese had only or mostly euro banknotes, and 52 percent only or mostly euro coins in their wallets on 2 January. In Cyprus, the respective figures were 43 percent for banknotes and 46 percent for coins.

When paying cash at shops, only a minority of both Cypriots (28%) and Maltese (36%) were already using the new currency but this compares favourably to the results of a similar survey conducted when Slovenia adopted the euro in 2007, when only one in five Slovene citizens (19%) paid in euro on the first working day.

The local authorities also reported some queues at banks and cash dispensers in Cyprus and Malta as people were eager to exchange national cash into euro and to withdraw euro cash on the first days after the changeover.

In both countries, the dual circulation period for people to use both new and old currencies will last until 31 January 2008.

Euro brings higher prices?

Prior to adopting the euro in Cyprus and Malta, EU officials called on the authorities in both countries to make sure the switchover was not exploited by speculators ready to raise prices and blame it on the new currency.

The early survey shows that there were some incidences of this already, with some price hikes recorded in car parks in Malta.

In comparison, the 2007 switchover to the euro in Slovenia was followed by higher prices for some services, such as restaurants and cafes.

Meanwhile, figures late last year indicated a significant rise in overall consumer price inflation in the ex-Yugoslav country, with the commission predicting an average level of 3.5 percent in 2007 and 3.7 percent in 2008, compared to 2.5 percent in 2006.

The jump in prices sparked fears over possible negative consequences for the public image of the single European currency and its impact. It also prompted EU officials to say they would consider this aspect more strictly when evaluating future candidates to join the eurozone.

After Slovenia, Cyprus and Malta's euro moves, Slovakia is the next in line of the 10-strong group that entered the EU in 2004 to join the single currency. It is aiming to adopt the euro on 1 January 2009.

The EU executive and the European Central Bank are due to assess Slovakia's readiness to join the euro club in May, with the Slovak government openly optimistic about its prospects for fulfilling the criteria.

But it is precisely predictions about future inflation rates that are causing some concerns in Bratislava, with Brussels urging more action on fiscal policy grounds to prevent price hikes following the currency changeover.

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