I hope the Deputy will excuse me if I provide a little background information in response to his questions. When the current Cypriot Government took office, Cyprus had a budget deficit of 6.8% of GDP. It had increased by three percentage points. The previous Government had submitted two conversion programmes to the European Union, but it did not observe them. It was a question of credibility. The current Government expects that it will succeed in reducing the deficit to 2.9% of GDP this year, after just two years in power, without having imposed any additional taxes but having put in place a very strict austerity programme, which is not popular in Cyprus. It expects that the deficit will be 1.9% next year and that there will be a budget surplus the following year, unless petrol prices start to increase rapidly once more.
This reversal in the economic fortunes of Cyprus has been achieved without any increases in taxation as a consequence of the maturity of employers and trade unions. I reached an agreement with all the unions in Cyprus. There is a very strong trade union movement in Cyprus — 76% of working people are members of organised unions. There were no wage increases in 2004 or 2005, although there will be an increase of 2%, which is below productivity, in 2006.
The current Government is dutifully preparing for the new conversion programme that it has submitted to the EU. Cyprus became a member of the exchange rate mechanism on 1 May last. An EU member state needs to have a track record of all indicators being right — its deficit needs to be what it says it will be, for example — for at least two years before it can join the eurozone. The earliest date on which Cyprus can join the eurozone is 1 May 2007.
I have learned, to my surprise, that introducing the euro is not an easy task. A Government cannot simply decide to introduce the currency from 1 January of a certain year. When I asked for the plans which my collaborators had produced, I was given two thick volumes of things which Cyprus had to do before it could prepare to join the eurozone. Cyprus sought the assistance of Ireland in its preparations because it was aware that its circumstances were closer to those of Ireland than those of any other member state. Under a programme that has been put in place, Cypriot public servants go to Ireland on a regular basis and Irish experts come to Cyprus to train its officials. All such arrangements are made by the Cypriot authorities. Cyprus hopes to join the eurozone in 2008. It may join the eurozone earlier than that, but the Cypriot Government would rather be certain before it decides on a date. That is the plan.
I was asked about Cypriot economic policies. We have a strong economy with low unemployment which has ranged between 2% and 4% over the last 30 years. We have low inflation and a good social insurance scheme. When I hear of the problems of pension schemes in other countries, I am glad actuarial reports indicate that ours will be sound until 2018. We can continue to increase welfare payments to the people.
We have a significant economic services sector which includes tourism, management, financial services and banking and we are trying to expand into private clinics and hospitals to attract people from outside. We plan for an annual rate of growth of 4% and an analogous increase in the social benefits we give to the people. Were it not for the adverse budget deficit we inherited, we would have been able to give more grants to our people. In appreciation for the co-operation of employers in keeping down their prices and the trade unionists in keeping down their wage claims, our Government decided last September to give sizeable, one-off grants, mostly to pensioners, those with incapacity and those who, for one reason or another, are not entitled to more than the minimum pension. This action was appreciated by the people.
Before Deputy Sexton left, she asked about the UN taking the lead. Our policy is that the Cyprus problem is one which comes under the aegis of the United Nations. It has been ongoing for many years and become a headache in many circles internationally. The UN has several very important decisions and resolutions concerning Cyprus, one of which, for example, is that no country should encourage the secessionist attitude of the Turkish-Cypriot administration. While we do not want to lose this support, we became, on 1 May last year, a member state of the European Union which already contained two of the protagonists in this issue, Greece and the United Kingdom. The fourth protagonist, Turkey, is eagerly pursuing its course towards membership of the European Union.
The EU cannot be left out and must play a more energetic role in Cyprus. Practically, we need it. I took part in negotiations on the previous plan, so many of the provisions of which are incompatible with EU law, even procedurally. Every week one or other of my Ministers is at the Commission and some of the subjects they address are clear-cut while others are not. One may find out that one has competition issues in the communications sector and needs to address monopolies. According to the Annan plan, if there is a doubt as to whose responsibility it is to go, the presidential council must decide who is going to leave. The proviso is that the decision must include one Greek Cypriot and one Turkish Cypriot vote. If the council does not decide, a court will.
The EU Council has the bad habit of taking meetings quickly and it does not wait for court decisions. If anyone from the EU was involved in a decision like the one I outlined, he or she would point out that the process did not work. We are asking the Secretary General to take the lead again and to appoint a special representative or take some other initiative while the EU lends its expert knowledge to negotiations.
