Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 18: Preparing for the Euro – Perspectives from the Monetary Policy Strategy in Cyprus
Athanasios Orphanides1 The purpose of this chapter is to share the experience of Cyprus in preparing for the euro, the lessons learned and the challenges that remain ahead. I will take this opportunity to examine the broader issue of monetary policy strategy on the road to the euro and related challenges for euro aspirants. Many of these challenges and the appropriate monetary policy strategy required to respond to them are likely to be country-speciﬁc – reﬂecting the historical experience and institutional arrangements in place long before entry into the euro area. Past experience has shown that there is no unique trajectory for a country’s entry into a monetary union. For this discussion, I will draw upon the experience of my country’s entry into the European Union and preparation for the euro area. Cyprus has a small, open and services-oriented economy. Real GDP growth has been historically robust, averaging around 6 per cent since the island’s independence in 1960 – consistently above the average trend for the euro area as well as for the European Union as a whole (see Figure 18.1). Consistent with this robust real GDP growth, the unemployment rate has historically been lower and more stable than in the rest of the European Union (see Figure 18.2). Indeed, the remarkable stability is noteworthy. An important exception was the period 1974–75, reﬂecting the military invasion of Cyprus by Turkey in 1974, which displaced one-third of the population from their homes, making them refugees in their own land....
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