(NICOSIA) - The Mediterranean islands of Cyprus and Malta ring in the New Year with the adoption of the euro on Tuesday, expanding the club of nations using the single European currency to 15.

Cyprus pounds and Maltese liri will be replaced by euro notes and coins from midnight on December 31 amid concerns among consumers that joining the eurozone will lead to price hikes.

Shops, banks and businesses on the islands -- which together have populations of just 1.4 million and are among the smallest members of the 27-nation European Union -- have been gearing up for the euro for several months.

Malta is planning a fireworks display in the Grand Harbour of the capital Valletta to mark the switchover, when Prime Minister Lawrence Gonzi will withdraw the first euro notes.

Cyprus is planning more low-key celebrations at its finance ministry, while President Tassos Papadopoulos will make the first euro withdrawal from an automatic teller machine.

The European Commission ruled in May that the two nations had met the strict economic criteria needed to become members of the eurozone, which will have a population of 320 million.

The commision set an exchange rate of one euro to 0.585274 Cyprus pounds and 0.4293 Maltese liri.

In Cyprus, stars such as tennis ace Marcos Bagdhatis were recruited to front a marketing blitz and Papadopoulos even said the euro would help efforts to reunite the country, divided since the 1974 Turkish invasion.

"We are optimistic that the adoption of the euro will create more favourable conditions leading to a solution that will actually reunite Cyprus, its economy, territory, institutions and society at large."

Huge queues extended outside banks across Nicosia last week as people got their first chance to lay their hands on the euro, delivered in high-security convoys.

Cyprus, an island with a population of under one million, joined the EU in May 2004 but a recent survey found 70 percent of Greek Cypriots believe eurozone membership will lead to inflation and profiteering.

"The euro might be good for big business, but what has the EU done for us? I can only see life becoming more expensive," said housewife Anastasia Kolokasides.

The government has moved to quash these concerns, promising monitoring of price fluctuations and new legislation to outlaw price-fixing, with offenders risking possible jail terms.

"The perception in the minds of the people is one thing, what actually happens is another. It doesn't stand up statistically," central bank senior manager Kyriacos Zingas told AFP.

About 7,130 businesses are taking part in a "fair pricing code" launched by the government.

Battling similar fears in Malta, the government signed 12 price stabilisation accords with importers for the period between October 2007 and March 2008, covering 6,700 products and services.

Maltese trade union UHM has deployed some 200 undercover buyers to check for abusive price rises in shops.

Analysts say adopting a stronger euro can only be good for the Cypriot economy as it will attract more foreign investment, stimulate growth and increase stability as the government will have to abide by stringent fiscal requirements.

Cyprus's key tourism industry attracts a large number of euro-wielding EU citizens, although eurosceptic Britain is the island's largest single market.

Malta hopes the adoption of the single currency will help the economy transform itself into a high-technology investment magnet.

"Malta became a very attractive place for investment from Europe and outside Europe at the moment we said we would be joining the eurozone," Prime Minister Gonzi told AFP recently.

From January 1 "it will be more so... in all sectors targeted for tranformation," he added, citing six sectors including information technology.

Cyprus pounds can still be used for the first month, but experts believe most will be out of circulation within 15 days with around 600 million pounds worth of notes set to be shredded and 40 million pounds in coins to be melted down.

In Malta, central bank chief Michael Bonello voiced concern that people are hoarding the equivalent of about 466 million euros of a currency which risks becoming worthless unless converted.

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