CYPRUS: Economic Forum dominated by debate on austerity or growth

Hundreds of businessmen gathered today in Limassol for the Forum, co-organized by the IN Business magazine and IMH Conferences -Media-Exhibitions under the auspices of the Cyprus Presidency of the EU Council. Senior EU officials, former European Commissioners, former Ministers and world-class economists participated in the Forum.

Speakers outlined the current situation the global and the European economies are facing and discuss issues such as the dilemma "austerity or growth". They also focused on ways to reduce the fiscal deficit and unemployment, to deal with the banking sector, action to restore growth and confidence in the Eurozone and ways to create new jobs.

The Forum was chaired by former Greek Finance Minister George Papaconstantinou.

Participants were welcomed by Limassol Mayor Andreas Christou who said that the fact that the event takes place in Limassol undescores the role of Limassol as an important maritime and business centre in the Eastern Mediterranean.

He said the southern coastal town of Limassol is the steam engine of the Cypriot economy. Christou invited delegates from abroad to studay the rapid developments in the Eastern Mediterranean associated with the exploitation of natural gas in the sea between Cyprus, Israel, Lebanon and Egypt. He noted that the results of drilling in Block 12 of Cyprus Exclusive Economic Zone (EEZ) suggest that Cyprus will soon develop a promising new industry.

"I invite you to consider these developments and determine how you or your clients can be part of this exciting new industry for Cyprus" Mayor said.

Limassol Chamber of Commerce and Industry Chairman Phil Andreou talked about solidarity within the EU, saying that strong nations should not be led to believe that they can maintain their strength and growth while consumers of weaker nations are been driven to deprivation. He advocated an integrated financial policy framework and said that a stronger monetary union is important in order to improve the finances of the weaker nations. An integrated economic policy framework is also needed but it should be combined with regional development efforts, he added.

On the financial problems in Cyprus, he said one needs a cool head to address the economic crisis and suggested that media reports at times confuse the public and worsen the situation.

“The current period is important as this is the time to face our economic problems and seek viable solutions. If the level of debts rises above serviceable levels, we shall all suffer,” he pointed out.

Former leader of the Conservative Party in UK and former UK Employment Minister Lord Michael Howard referred to the current unstable situation in global politics which could have a significantly adverse effect on the global economy.

In particular on the Eurozone, Lord Howard indicated that he always believed that the Euro was a fraud concept, recalling that he strongly opposed the UK joining the Euro. "It might have worked well if all the countries that adopted the single currency intended to become a single state. It might have worked well if all the countries that adopted the currency had similar economies but as we all know neither of those preconditions was present, and more over the differences between the economies of the states that adopted the Euro have actually grown since its initiation,” he said.

Lord Howard stressed that membership of the single currency deprives countries of the important element of flexibility in running their economies.

The very best outcome would be an orderly dissolution of the Eurozone which would free up every member state to take what is regarded the appropriate measures to deal with the circumstances of its economy, he said, noting that the measures would include for some countries a degree of currency depreciation and for some others as Germany currency appreciation. However, he said that he knows that there is not going to be an orderly dissolution of the Eurozone as the political implications are not acceptable to most of Europe`s political elite.

The worst outcome would be a disordered dissolution of the Euro, but this would create a dislocation of the world economy with disastrous consequences. "Europe will do what Europe does best, it will muddle through but this would have a cost in terms of decreasing growth. Will this involve the departure of Greece or Cyprus from the Eurozone? Probably not as if Greece leaves, then the markets would focus on Portugal or Spain and that is a risk Europe`s politicians will not take" he indicated.

Cypriot former Minister of Finance Michalis Sarris said that countries with large deficits and high debts can create neither jobs nor growth. The public deficit, he added, crowns out the private sector meaning that the public sector borrows all the money, creates prospects for increases of taxes and interest rates and therefore destroys consumer and investment confidence.

He said that the EU has accepted the idea of a Banking Union, saying it will be very helpful as long as it`s implemented correctly, increasing solidarity and dealing with countries with large deficits.

The six north European countries (Germany, Austria, Switzerland, The Netherlands, Sweden and Denmark) in the past 12 months have announced a large surplus of more than half a trillion Euros. "These countries must participate in the adjustment. Austerity will work if this global rebalancing comes primarily from austerity but at the same time through wage increases and spending increases in the surplus countries, so tradition economic theory will be allowed to work, where surplus countries have to do their part and deficit countries also have to do their part", he concluded.

Former EU Commissioner and former Member of the European Parliament for Poland Danuta Hubner said the EU has made a lot of mistakes such as the inability to manage to decouple the financial crisis from the banking sector crisis and also the late respond to the crisis. She also criticized the effectiveness of austerity measures, noting that history proves that of around 60 cases of austerity packages over the last 45 years only half of them had positive results.

She pointed out that what needs to be done is to use the Single Market space to generate growth, indicating though that this will not happen within the austerity package approach, but with identifying the growth potential and the measures that need to be taken to generate growth at the European level.

She also noted that the EU Budget for the years 2014-2020 can be used to launch growth.

From his part former Minister of Finance and former Governor of the Central Bank of Portugal Luis Miguel Beleza noted that austerity works as long as it`s tough enough, pointing out at the same time the exit from the Eurozone is a catastrophe.