Cyprus ditches pound for euro

Click to follow

With a burst of fireworks and popping champagne, Cyprus ushered in the euro today after ditching its pound at the stroke of midnight.

In the first major currency shift since the introduction of the Cyprus pound by former British colonial rulers in 1878, Cyprus joined the euro zone an hour before Malta, the other Mediterranean island which joined the European Union in 2004.

Officials hope admission to the euro zone can help bring together the economies of the divided island, split along ethnic lines since a Turkish invasion in 1974 triggered by a brief Greek-inspired coup.

"The foundation is laid for a unified economy with a common currency," President Tassos Papadopoulos said in a state address.

Use of the euro applies only to the southern part of Cyprus controlled by the island's internationally recognised Greek Cypriot government. The north, a breakaway Turkish Cypriot state recognised only by Ankara, will continue to use Turkish lira.

The island of just under one million inhabitants represents 0.2 percent of the euro zone's GDP. To qualify for euro zone admission, Papadopoulos's administration successfully wrestled down budget deficits and tackled burgeoning public debt.

The island is slated to return a surplus - the first time since 1971 - of 1.5 percent of GDP in 2007 and a debt of 60 percent of GDP. In 2008, the surplus is expected to be 0.5 percent and public debt is forecast to fall to 48 percent.

"This is the dawn of a new era and a change to our way of life," said Papadopoulos.

The pound will cease to be legal tender in cash transactions at the end of January. From midnight Monday, businesses are obliged to use euros.

Authorities hope that within the first 15 days of January most Cyprus notes will be withdrawn from circulation. About 50 percent of coins will also be returned.

Cyprus is joining the euro zone with one euro trading for 0.585274 pounds. Adoption of the euro will boost investment, authorities said, although the primary market for its important tourism sector, Britain, is not in the euro zone.

Even though Britain has remained out of the euro mechanism, Tuesday's changeover is applicable to two pockets of sovereign territory London has retained on the island since granting Cyprus independence in 1960.

Inhabitants of the British-administered Sovereign Base Areas (SBA), including some 4,000 troops and 7,000 dependents, will use the euro in transactions.