Central Bank of Cyprus Governor Christodoulos Christodoulou called for an overhaul on public finances and for a fundamental modernisation and structural changes in the Cypriot economy.
At the same time, he said there is “no return or any postponement” from accession to the Eurozone on January 1, 2008, noting “we have the necessary qualities to win the gamble of the future, provided that we want to.”
Cyprus launched an 18-month media blitz on May 31 targeting January 1, 2008 as its euro admission date, but it was tempered by a call on the same day by AKEL to consider a delay to 2009.
“Once more, I want to caution on public finances. The spectacular improvement in the last two years, is partly due to circumstantial factors and superficial favourable conditions, therefore they do not arouse a feeling of certainty, security and permanence because they are not a result of fundamental restructuring and structural reshuffling,” Christodoulou told a press conference where he presented the Central Bank annual report for 2005.
“The spectacular improvement in the past two years is, in part, the result of exceptional factors such as the tax amnesty proceeds of CYP 118 mln, and short-lived favourable conditions,” he said.
The Governor made particular mention of the way Lithuania missed mentry into the eurozone, not because its inflation was 2.7% as opposed to the 2.6% requirement, but because its sustainability was in question.
Cyprus is engaged in a stringent drive to maintain its budget deficit below 3% of GDP, one of several economic conditions required by the European Union for eurozone applicants. It forecasts a deficit of 1.9% of GDP in 2006, narrowing it down to 1.2% in 2008.
The Central Bank Governor said now is the time for a new model for the economy since the tourism sector is going through a crisis while the services sector needs to be modernised.
On the rise in inflation in May, which exceeded 3%, Christodoulou said “its upward trend should worry us” and stressed the increase was not due to the price of oil or its by-products but because of increases in the price of goods and services.
He also said the modernisation of the banking sector is one of the three aims he has set and will insist it is implemented until the end.
On reports that the Turkish Cypriots are considering adopting the euro, Christodoulou said: “The Turkish Cypriot side does not see the matter in economic terms, but rather in political and chauvinistic terms.”
He said that only EU member-states could use the euro as their official currency, so it was “impossible” for the occupied territories to do so.
