Cyprus's government announced on Wednesday that it intends to adopt the euro in 2008, rather than 2007 as originally expected.

Although the island joined the ERM2 exchange rate mechanism in 2005, the authorities are obliged to address the country's fiscal deficit prior to entering the eurozone. Tougher spending provisions mean that the budget deficit is now expected to be below the 3% of GDP ceiling required by the Stability and Growth Pact when Cyprus adopts the european currency.

The entry strategy for joining the eurozone has not yet been outlined in detail, although reports have suggested that the government will go over its plans with all Cypriot political parties in the near future.

Tax receipts this year are ahead of expectations, but the government is under pressure from various quarters to accelerate spending, especially given that an election is due next year.