Speaking on Reuters Television, Papademos also said that long-term interest rates in Greece would converge with the rest of Europe to the point that the spread with euro bonds could be below 1.5 per cent at the end of 1999.

The drachma is also likely to remain strong within ERM2, the new exchange rate mechanism set up against the euro, he said.

Greece failed to qualify to be in the first wave of euro-zone countries, but hopes to meet all criteria for economic and monetary Union (EMU) this year for entry in 2001.

Inflation, currently running at around four per cent but needing to be at about 2.5 per cent, was seen as the most difficult criterion for Greece to meet. Papademos, interviewed in late December, said that has changed.

"Two months ago, I would have said the most difficult challenge for us would be to reduce inflation to a level compatible with the convergence criteria," he said.

"But the latest forecasts we have lead me to the conclusion that inflation will decelerate fairly fast in the first part of the year to a level close to and possibly below two per cent.

"I would say now that meeting the five convergence criteria...is equally likely," he said.

Papademos said that Greek long-term interest rates were still far higher than they needed to be for EMU but that falling inflation and demand for government securities as Greece closed in on EMU would bring rates down.

"It will of course partly depend on the level of long-term yields in the euro zone," he said. "However, the differential can be expected to be less than 1.5 per cent by year-end."

Papademos said short-term rates would fall along with inflation this year, but not "at the same time or to the same extent".

The drachma, meanwhile, would stay strong against its europarity in ERM2, where it is alone with the Danish crown.

"The exchange rate of the drachma will fundamentally reflect two factors: On the one hand, the tight monetary policy that we are pursuing, and on the other, the confidence of the markets in the prospect of Greece joining monetary union.

"The two factors together would suggest that the drachma would remain strong within the exchange rate mechanism," Papademos said.