Cyprus on Saturday welcomed its entry to the European Exchange Rate Mechanism (ERM II), with the country set to adopt the euro as soon as 2007.

"Preparations for the introduction of the euro as soon as possible have already begun with the implementation of a strategic plan," said a statement issued by President Tassos Papadopoulos.

Cyprus officially joined the ERM II on Friday night, along with Latvia and Malta. The three countries were among the 10 that joined the EU last May.

Papadopoulos said joining the ERM II will bring "specific and tangible benefits to the island's economy".

"I am pleased to announce that the important economic goal we had set to see the Republic of Cyprus join the ERM II has been achieved."

Papadopoulos said the decision vindicated the government's austerity drive which has cut down the public deficit to 4.2 percent of GDP in 2004 from a high point of over double the Maastricht convergence criteria of 3 percent.

"With great effort... we managed to reverse the overall financial situation of public finances and lay down a healthy basis for the economy to the extent that the EU, after pain-staking examination, decided that Cyprus could join the ERM II."

Nicosia believes that joining the ERM II will also increase the stability of the Cyprus pound.

Apart from getting the fiscal deficit to below 3 percent of GDP in 2005, Nicosia also seeks to lower public debt to nearer 60 percent of GDP as stipulated by EU criteria.

Economic growth is expected to reach four percent in 2005 compared to 3.5 percent last year.

Joining the ERM II is the first step towards full membership of the eurozone, to which 12 EU members already belong.

Before they can switch to the euro they will have to maintain their currencies within a limited range relative to the euro for two years.

Estonia, Lithuania and Slovenia, which also joined the EU last year, entered the ERM II in June.