Govt Working Hard To Avoid European Support Mechanism - Christofias
But there are significant challenges to the economy, said Finance Minister Vassos Shiarly, including the banking sector's exposure to Greece's debt haircut.
According to the new Central Bank Governor Panicos Demetriades, the problems in Greece's economy inevitably affected Cyprus and the answer lies in recapitalising the banking sector as soon as possible and focusing on growth and development, he said in comments to the Bank Employees' Union.
Austerity policies alone cannot break the vicious cycle between reduced economic activity and rising fiscal deficits, he said. This position is clearly gaining ground among European leaders, he said, citing President of the European Central Bank Mario Draghi as saying that development is sustainable if it is based on fiscal stability.
Releasing structural funds to small and medium enterprises could be an important step towards addressing the current recession, he said.
According to the president, the finance minister and the Central Bank governor, most of the problem comes from outside Cyprus, a position that seeks to avoid the blame laid at the government's door by former CB governor Athanasios Orphanides, who said that the AKEL-led administration spent 500 million euros - effectively the surplus left from the previous government - in its first two years in power.
The overspending resulted in a lack of reserves needed to bail out the banking sector in the case of an emergency and it was only with the strong urging of the opposition that austerity measures were enacted at the end of last year.
Without new austerity measures, the deficit this year could reach 3.4 percent, according to estimates from the European Commission. Shiarly is currently in talks to get agreement on more austerity measures to reach the finance ministry's goal of a 2.5 percent deficit.
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