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Two island nations' bid to join euro zone

David Gow

BRUSSELS: Cyprus and Malta, two former British colonies, set course at the weekend to adopt the euro by 2008 — days after Tony Blair ruled out U.K. membership until after 2010 at the very earliest.

The two island states and Latvia, which all joined the E.U. on May 1 last year, agreed to tough structural and economic reforms over the next two years as they joined the exchange rate mechanism — a prelude to full euro entry later this decade.

Ten new countries, including eight from eastern Europe, joined the E.U. a year ago and are expected to swell the eurozone to at least 22 members by 2010 if they meet the entry criteria. These include a budget deficit of less than 3 per cent, a debt-to-GDP ratio of 60 per cent and inflation and interest rates close to those of the best performing economies in the eurozone. They must also keep their currencies within a plus or minus 15 per cent band around a central parity rate against the euro.

All three said they would toughen their fiscal stance, cutting debt, containing wage growth and public spending, and would reduce inflation, which in Latvia's case is more than 6 per cent against the eurozone's 2.1 per cent.

Cypriot central bank governor Christodoulos Christodoulou said the authorities would raise the retirement age to improve the public finances while Malta said it could raise taxes and step up its privatisation programme. —

© Guardian Newspapers Limited 2004

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