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'Let Greece be a lesson to us'.


Charles Charalambous

CYPRUS could end up like Greece unless the state's finances are put in order, Finance Minister Charilaos Stavrakis warned yesterday.

"Greece's misfortune should be a lesson to us", the Minister said. "You can see where an extended laxity in public finances, during which people refuse to make any kind of concession and various organisations continuously pressure the government for increased provisions and benefits, can lead. You can also see that the economic cost could be much bigger, one which the man in the street will have to bear."

Referring to the 22 separate pieces of draft legislation that will be considered by the House of Representatives in three weeks time covering the measures designed to stamp out tax evasion and a wider raft of budget measures still being worked out by the Finance Ministry, Stavrakis said: "The key thing right now is to get approval for those measures that will secure the viability of public finances in the medium term."

Stavrakis is travelling to Greece today to meet his counterpart George Papaconstantinou, the head of the Greek Central Bank and the head of the National Bank of Greece, to discuss ways of minimising the general impact on the Cypriot economy of Greece's far-reaching crisis, but also specific potential pressure-points.

Referring to the fact that many Cypriot banks have branches and/or operations in Greece, and vice versa, Stavrakis said that "the main dependence of Cyprus on Greece is via the banking system." He added: "The two countries' banking systems are connected vessels, so any increase in interest rates in Greece will have unfavourable consequences in Cyprus. This is why it is especially important that steps be taken in Cyprus to reduce the interest rates."

The Finance Minister said that: "Despite this particular interdependence, the two economies remain separate to a large extent, with separate regulatory bodies, and there are specificities in each country. But I do think that, if we show the right will, interest rates in Cyprus can in fact be reduced."

"We have said on very many occasions that a reduction in interest rates in Cyprus will be a decisive factor in encouraging economic growth. The recent battle we have witnessed between the commercial banks and the co-operative banks has led to an increase in interest rates, and any attempt to reduce the tension would be very helpful."

Stavrakis' latest repeat of his request to the banks over interest rates coincided with the presentation yesterday by the Cyprus Central Bank of the results of the latest quarterly bank lending survey (BLS) in the euro zone, organised by the European Central Bank (ECB).

The survey involves putting a number of questions to a representative sample of the euro zone's banks regarding their lending activities: credit standards for approving loans; credit terms and conditions; and credit demand and the factors affecting it. Each BLS presents a snapshot of the changes recorded during the previous three months, and the banks' expectations for the coming three months. Cyprus has been participating in the BLS since April 2008.

Central Bank Senior Director George Syrichas said that the results of the January 2010 BLS for Cyprus were close to those for the euro zone as a whole, in that credit standards have tightened in the recent period, reflecting the caution being shown by the banks.

Specifically, credit standards showed no change compared to the third quarter of 2009 in terms of loans to businesses in Cyprus, and the banks expected this to continue for the coming three months. There was a net tightening of credit standards for mortgages -- in other words a larger proportion of banks have tightened their credit standards -- but to a lesser extent compared to the previous quarter, from 20 per cent to 10 per cent. Consumer credit and other lending to households remained unchanged.

Net demand for credit from businesses increased to 10 per cent from minus 10 per cent the previous quarter, and net demand for mortgages also went up, from 0 per cent to 10 per cent. However, net demand for consumer credit and other lending to households went down by 10 per cent compared to the previous quarter.

Copyright Cyprus Mail 2009

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Publication:Cyprus Mail (Cyprus)
Date:Feb 12, 2010
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