Governor’s address on euro

The integration of Cyprus into the euro area:

The beginning of new challenges and new opportunities

 

By Athanasios Orphanides

Governor of the Central Bank of Cyprus

 

January 1, 2008 marks the full integration of Cyprus into the economically and politically powerful euro area, which is undoubtedly one of the most important positive challenges that Cyprus and its economy have ever faced.  Cyprus is now part of the selective group of Member States with a strong common currency. Our country’s role within the European Union has been upgraded, as well as its responsibilities.  The economic conditions necessary to face the new challenges are appropriate: a satisfactory rate of economic growth, low unemployment and, in general, broad macroeconomic stability. 

The Central Bank of Cyprus has played an important role in securing the right economic conditions and will continue to do so through a different scope, within the euro area, which now includes Cyprus.  From 1 January 2008 the Central Bank of Cyprus participates in the Eurosystem, a system of central banks, which includes the European Central Bank (ECB) and a group of 15 national central banks of those EU countries that have adopted the euro.  This system of central banks, whose independence is ensured by the Treaty of Maastricht, is responsible for the common currency and the monetary policy of the euro area. Its fundamental objective is to ensure price stability, which constitutes a precondition for stable and sustainable economic growth.     

The loss of monetary policy at a national level elevates the importance of sound fiscal policy and structural reforms aiming to increase productivity and improve our international competitiveness and hence our standard of living.  It should be noted, however, that the maintenance of sound public finances is not in contradiction with development or social policies.  Fiscal discipline should be consolidated and strengthened on a precautionary basis, particularly during favourable economic conditions, as they currently prevail in Cyprus.  

Within the new unified economic environment, the opportunities for Cyprus are tremendous.  However, to take full advantage of these opportunities, it is imperative to safeguard prudent policies and decisions so as to create the necessary conditions for our objectives and goals to be accomplished. At the same time, we need to abandon obsolete attitudes and practices that are no longer effective in the environment of economic globalisation and intense competition within the strong economy of the euro area.  Looking ahead, we must recognize that even if certain economic recipes worked relatively well in the past under different conditions, there is no guarantee that they will continue working equally well in the future.

The challenges ahead are well understood. And, thus, I am optimistic about the future of our economy.  However, the magnitude of the success depends very much on our choices.  The opportunities presented to us with the adoption of the euro should not be left unexploited.  We have already achieved a great deal.  It is in our hands to achieve even more.