ECONOMY

‘Greek capital is welcome’

The Republic of Cyprus encourages the arrival of capital from Greece, said Cypriot Finance Minister Michalis Sarris in an interview with Kathimerini. He visited Athens to see to the further strengthening of economic cooperation a few days after the island’s central bank urged caution on Greek interests in Cypriot banks. What is your first assessment of Cyprus’s participation in the European Union? The coordination of fiscal policies of EU member states within the context of the Stability and Development Pact has contributed to the decline of the fiscal deficit (2.4 percent of gross domestic product in 2005) and the consolidation of long-term stability. This fiscal improvement contributed to increasing growth from 2 percent in 2003 to 4 percent in 2004. The harmonization course of Cyprus created the conditions for promoting important structural changes, such as modernizing the tax system by cutting tax rates, placing Cyprus among the countries with the lowest rates. The financial sector was also transformed and important sectors of the economy were liberalized, creating openings for local and foreign investors. Another important development has been the island’s entry into the Exchange Rate Mechanism II, which further strengthened the markets’ trust in the Cypriot economy, led to significant foreign investments and paved the way for Cyprus’s expected entry into the eurozone on January 1, 2008. Cyprus has made the most of these opportunities and faced the challenges of its EU membership by achieving satisfactory growth levels in conditions of near full employment and low inflation. Cyprus is soon to enter the eurozone. What will this mean for the economy? The eurozone entry is the natural sequence of Cyprus’s successful course as an EU member. We expect our economy to become even more stable, with the fiscal deficit falling to below 0.5 percent of gross domestic product in 2009, our interest rates to stay at low levels and investment activity by Cypriot and foreign investors to strengthen. A key element for Cyprus, a small and open economy with an exporting character, will be the elimination of exchange rate risks in dealing with other eurozone countries; this will add to the country’s attractiveness as a credible international business center and to maintaining high growth. It will also enable our economy to deal better with the political and economic tensions in the Middle East and the Eastern Mediterranean. On the political level, what does the entry into the EU mean, given the problems with Turkey? We believe that the entry of the Republic of Cyprus into the eurozone will facilitate future negotiations on the Cyprus problem, mainly because the euro will be accepted by all sides as the common currency of a reunified Cyprus. Eurozone accession will also create a framework for currency policy formation and the monitoring of the financial sector, contributing to the effort for the unification of the economy. What is more, Cyprus will have to follow specific strict rules of fiscal discipline, guaranteeing that a reunified Cyprus will follow a rational fiscal policy so that it will be economically viable, one of the main conditions for solving the Cyprus problem. How is the cooperation between the Athens and Nicosia bourses going and what are the practical benefits? On a practical level, the next strategic step is to promote the common trading platform that is now at a very advanced stage and will contribute to the required strengthening of the cash flow of the two markets and cooperation between the two countries. Another dimension is the planned upgrade of the two stock markets’ relations with neighboring bourses, through coordinated and shared initiatives. Is the ongoing tourism cooperation between Greece and Cyprus positive for the two states, when both can stand autonomously as destinations? This cooperation is already at a satisfactory level, as statistics show, but there is definitely considerable scope for further upgrading, particularly in the formation of joint packages (two-center tourism) for tourists arriving from remote markets. I am certain that the private sector will seize on the business opportunities there. Nicosia and Athens are ready to offer any kind of assistance, particularly toward forming a promotion strategy. How do you see the decision by Bank of Cyprus to bid for Emporiki Bank? What will this mean for the Cypriot economy if it is successful? Bank of Cyprus is a modern, outward-looking bank with remarkable activity in Greece’s market. Its decision to bid for Emporiki is part of its strategic decision to strengthen its activities in the promising market of Greece. I am sure that Emporiki shareholders, and the Greek state, will examine the bid by Bank of Cyprus carefully, based on financial figures. The central bank of Cyprus has made an ambiguous intervention in Piraeus Bank’s acquisition of a Bank of Cyprus stake. The initial impression was that there was reaction to reducing «Cypriot money» in Cyprus’s As a principle, I would first like to stress that the Cypriot government encourages the activity of companies from Greece in the Republic of Cyprus, including Greek banks, as we believe they contribute positively to the island’s financial growth. In the same context, we approach the issue of the interest of Piraeus Bank in Bank of Cyprus. Without commenting on the central bank, which as you know is independent, I think its moves on Piraeus were aimed at transparency and not at hindering the Greek bank’s acquisition of Bank of Cyprus shares. This was also the essence of the official statements made by the governor of the central bank.