The European Union’s executive office will announce on 16 May whether Cyprus and Malta can join the euro currency next year, the European Commission’s top economy official said yesterday.

The European Central Bank is also likely to give its view close to that date, EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters.

If both support adding the two nations to the 13-nation euro economy, EU finance ministers will then have to take a final decision in June.

“We will adopt our report on 16 May, more or less the same calendar as the ECB. If the assessment is positive in both cases, or one of both cases, we will present the proposal to the European Council (of Ministers),” Almunia said after ministers met for talks.

The Commission and the ECB must judge if the two countries meet EU standards on inflation, budget deficits and overall government debt. Only one other country that joined the EU at the same time – Slovenia – has adopted the euro. High inflation in Latvia and Lithuania, which joined the EU at the same time, has forced the two Baltic states to delay plans to join the currency zone.

Slovakia is scheduled to join in 2009. Estonia is likely to delay membership beyond 2011, as its growing economy sees inflation surge.

Target dates for the larger recent EU members – the Czech Republic, Hungary, Poland, Bulgaria and Romania – are still up in the air.

Meanwhile, Malta was reported to be “rather positive” about a German and Austrian proposal to charge VAT to the final customer for all products.

EU finance ministers discussed how they can tackle sales tax fraud and whether hedge funds need stricter rules at a meeting yesterday.

A second day of talks between all 27 European Union nations was aimed at making progress on what they can do to curb a growing value added tax fraud that leaches an estimated euro60 billion to euro200 billion from their treasuries every year.

Governments usually charge VAT to all customers in the supply chain, offering refunds to business-to-business buyers. But some criminals exploit the difficulty countries face in tracking transactions in other nations, by wrongly claiming refunds for tax they have never paid elsewhere or by disappearing with the VAT they have collected from customers.

More trade in easy-to-transport high-value items – like computer chips, mobile phones and personal digital assistants – has seen this problem grow. Britain is keen to change the way it taxes these items and will start to only charge tax to the final customer for these products, ending the system of allowing refunds throughout the supply chain.

But Germany and Austria want to address the issue more widely, by charging VAT to the final customer for all products. The EU executive has been resistant to this, as it would mean major changes to Europe’s existing tax systems. Some nations fear that it would unravel efforts to set uniform standards throughout the bloc.

Austria’s Deputy Finance Minister Christoph Matznetter said his country was seeking support to start a pilot project to try this out, saying it would be easy to set up and check transactions because businesses are increasingly filing tax returns on the internet. He said a more detailed plan would be presented to ministers when they meet in June and he had had “positive signs” from Belgium, the Netherlands, Luxembourg, Malta and others.

Last year, Berlin stalled any deal on a wide-ranging package to simplify VAT until all countries support its call for more work on the reverse charge. Taxation policy needs the unanimous backing of all EU ministers.

The European Commission, which would need to put forward new rules, said it is open to changes but needs “clear orientation” from EU nations before it could start work.

Ministers were also discussing whether hedge funds and private equity funds pose a risk to the global financial system ahead of another set of talks on the issue between G-8 nations in June. Germany, which currently leads both the G-8 and EU meetings, is asking others to consider more active regulation, saying it was thinking of a code of conduct or a seal of approval for responsible funds.

The EU official in charge of drafting any changes, Charlie McCreevy, has repeatedly said he sees no need to regulate hedge funds, a sector he has described as working well. But a group of high-level advisers to the EU, the Economic and Financial Committee, reported this week that authorities may, in times of crisis, need access to reliable information on the risks hedge funds are taking on. It suggested that officials needed to better understand how hedge funds work, what vulnerabilities they face and what risks they might pose to the financial system as a whole.

It also warned that private equity investors may not understand the risk they are taking on because buy-out deals are often complex and highly leveraged, saying there was need for greater vigilance in enforcing existing market abuse rules.

It called for more monitoring on how much risk pension funds and banks are faced with as they increasingly invest in these more speculative investments in an effort to win higher returns than other sectors.