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IP/07/1769

Brussels, 27 November 2007

Sixth Report on practical preparations for the euro: countdown for Cyprus and Malta

With only five weeks to go before the adoption of the euro by Cyprus and Malta, the Commission made a final assessment of the state of practical preparations for the currency changeover in both countries. The Commission concluded that both Member States are well prepared for the introduction of the euro.

"Malta and Cyprus will adopt the euro in January 2008, less than four years after they joined the EU. This is something the Cypriot and Maltese people can be proud of because they will become part of the largest monetary area of the developed world, which has delivered an unprecedented period of price stability and favourable financing conditions for businesses and households alike", said Joaquín Almunia, European Commissioner for Economic and Monetary Affairs. He added: "They must embrace this important step with confidence, but also with their eyes wide open to make sure that they are fully familiar with the new currency and to detect, and challenge, any abuse. Public authorities must also be careful and pursue policies that continue to deliver economic stability as a precondition for sustained growth and job creation."

The Commission today adopted the sixth report on the practical preparations for the enlargement of the euro area. It focuses on Cyprus and Malta which will adopt the euro in January 2008. A staff working document attached to the report addresses the state of preparations in the other European Union countries that have yet to adopt the euro.

Cyprus

With only five weeks to go before January 1st, the preparations for the introduction of the euro in Cyprus have progressed considerably and the country seems to be generally well prepared.

A majority (60%) of the euro coins ordered by Cyprus arrived mid-October, with the remainder expected to be delivered by the end of this month. The Cypriot coins were produced by the Mint of Finland following a public call for tenders.

The required amount of euro banknotes also arrived at the central bank in the course of October. Unlike euro coins, which are produced by each euro area country, banknotes are borrowed for the time being from an existing common stock.

The frontloading of commercial banks started on 22 October, for coins, and 19 November for notes. The Cyprus Central Bank estimates that the banking sector will receive approximately 80% of the value of the euro banknotes needed for the national economy before January. The equivalent value in coins is 64%.

Banks will, in turn, provide retailers with euro cash before January, so they can give change exclusively in euro from day one. A total of 40,000 pre-packed euro coin kits for businesses (worth €172 each) and 250,000 mini kits for the general public (worth €17.09 each) will be on offer as from the 3rd of December.

At least 70% of the country's 550 bank cash dispensers will be ready to dispense euro cash by 1.a.m on January 1, with the remainder expected to be converted into euros by the end of that same day.

The Central Bank of Cyprus has estimated that more than 60 million euro banknotes (worth €1.2 billion) and 395 million euro coins (worth €100.26 million) are necessary. The Republic of Cyprus had a population of 778,684 at the beginning of 2007.

Recent surveys indicate that the Cypriot enterprises are well prepared for the changeover and that they did not experience any significant problems in the course of their preparations.

But the opinion of the general public on the euro changeover remains mixed. A total of 67% feel that they are 'rather well' or 'very well informed' about the euro, according to a Eurobarometer survey carried out in September which represents an increase of 14 percentage points compared with an earlier poll in April this year. This is the result of the increased communication efforts. But nearly three quarters of the respondents fear price increases on the occasion of the changeover. The Cypriot authorities have further strengthened measures with a view to enhancing consumer confidence: about 7,130 enterprises, including larger retailers and banks, subscribed to the Fair Pricing Code launched by the government in July 2007. The dual-display of prices, compulsory since September, is monitored by five Euro Observatories. The Ministries of Finance and of Commerce and Industry also monitor prices in cooperation with the statistics office and the consumers association.

Malta

Malta has further refined and completed its practical preparations and seems well prepared for the euro.

Frontloading of euro cash to banks started mid September after the Central Bank of Malta received the coins ordered from the Monnaie de Paris, the French mint.

According to estimates of the central bank, 41.51 million euro banknotes (worth €799 million) and 140 million euro coins (worth €39.29 million) are necessary to replace the Maltese lira. Malta had a population of 407,810 at the beginning of 2007.

About 92.5% of the banknotes which will be introduced in the Maltese economy and about 71% of the euro coins will be supplied to banks before January. 33,000 starter kits for businesses (worth €131 each) and 330,000 mini kits for citizens (worth €11.65) will be available at banks as from the beginning of December 2007.

While enterprises appear well prepared, still about two-thirds of the Maltese population (65%) also fear price increases on the occasion of the changeover. The authorities continued to implement a comprehensive set of measures to address those fears. Those include the FAIR price initiative, under which more than 6,500 businesses (representing about 80% of the retail outlets) have committed not to increase the prices of goods and services "for the reason that a monetary changeover is taking place". This is complemented by Price Stability Agreements which were concluded with major importers and manufacturers.

Background

Inflation in the euro area has dropped to around 2% on average since the mid 1990s as the economies of the EU countries that launched the euro -- first through the locking of the bilateral exchange rates, in 1999, and with the euro cash in 2002 – converged from an average of 5% in the early 90s. Even after the recent credit tightening, interest rates remain low by historical standards.

2008 will mark the second enlargement of the euro area since 2002. Slovenia adopted the single currency in 2007.
For more details on the practical preparations for the introduction of the euro in Cyprus and Malta as well as other EU countries see report and staff paper on:

http://ec.europa.eu/economy_finance/index_en.htm
For the Eurobarometer see:

http://ec.europa.eu/public_opinion/euro_en.htm

For the national changeover preparations see:
Cyprus:

http://www.euro.cy/euro/euro.nsf/dmlindex_en/dmlindex_en?opendocument
Malta:

http://www.euro.gov.mt/default.aspx


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