European Central Bank council member Panicos Demetriades criticized austerity on Saturday and called for growth-oriented policies in his inaugural speech as the new central bank governor of Cyprus.
?Both in Cyprus and in the euro area, it is now becoming understood that an austerity policy alone is not enough to put countries? budgets back on a sound footing,? Demetriades said, according to a text of his speech in Nicosia. ?Growth is needed above all else.?
Voters in Greece and France in May 6 elections challenged austerity as Europe?s sole prescription for the debt crisis, adding pressure on German Chancellor Angela Merkel to broaden her focus from debt reduction. Demetriades has inherited an economy in turmoil, with banks reeling from losses on their exposure to Greece and the government unable to borrow on financial markets. The Cypriot economy, the euro area?s third- smallest, will shrink 0.8 percent this year, the European Commission said yesterday.
Demetriades said he welcomed comments by ECB President Mario Draghi that a growth compact is needed in Europe to complement the fiscal compact.
?The fiscal compact agreed by the euro-area leaders is of course a significant step toward achieving balanced budgets, but the recession created by the austerity measures unfortunately strengthens the vicious circle of decreased economic activity and widening budget gaps,? Demetriades said.
He quoted Draghi as saying ?we must place growth in the center of the agenda? and added, ?This idea appears to be gaining ground among European leaders.?
Demetriades, who succeeded Athanasios Orphanides and the end of April, made no mention in the speech of maintaining price stability, which is the ECB?s primary mandate.