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Cyprus

PRICES should be going down but instead inflation last month in Cyprus was three times the eurozone average, the Cyprus Chambers of Commerce and Industry (KEVE) warned yesterday.

The economy was facing an alarming “triple whammy” of negative growth, rising unemployment and a worrying inflationary trend, KEVE president Manthos Mavrommatis said after meeting Central Bank Governor Athanasios Orphanides.

“During economic downturns, prices normally go down, not up, and certainly not so much more than those of our partners,” said Mavrommatis.

He said the fact that inflation in February was three times the eurozone average – climbing to 2.8 per cent compared to the 0.9 per cent average – was “another alarm-bell” that is ringing for the Cypriot economy.

Mavromatis said that the big price increases that are feeding the inflationary trend were concentrated in domestic services and products.

“It is clear that our competitiveness is being eroded, and this foretells even worse consequences for the future,” Mavrommatis said. “We need to see which closed professions should be opened up, what distortions are affecting competition and need to be reduced in order for competition to operate better and for prices to be restrained.”

Mavrommatis added that the government must make “bold structural changes” to the state’s “unsustainable” finances. “Because this situation cannot be allowed to continue.”

The country’s public finances had “gone off the rails” to the point that they were no longer at sustainable levels.

“Even if the private sector is able to recover, the public finances are not likely to recover on their own,” he said.

The KEVE chief said the package of economic measures for reducing the public deficit that are soon to be presented by the Finance Ministry need to focus on cutting back on public spending, otherwise “the measures will be transitory, spasmodic and obsolete”.

At the same time, he said the legislature should approach these proposals within a spirit of consensus and with a view to share the political cost involved in such decisions.

“Nobody can shoulder the burden of such serious decisions on their own. Not the Finance Minister alone, nor the government alone, nor any one political party – it is a matter that concerns us all”, he added.

“Our general worry, both of KEVE and the Central Bank Governor, is that we cannot wait any longer. We need these measures today, not tomorrow.”

Another topic covered by the KEVE representatives and Orphanides in their discussion was the need to guarantee the independence of the bodies appointed to regulate the island’s financial system.

Mavrommatis said that in addition to the Central Bank – which currently is the only independent regulatory body – the other bodies regulating the Cyprus Stock Exchange, Co-op banks, insurance sector and provident funds should also be made independent, in line with EU recommendations and the Lisbon Treaty, “so that they can take their decisions without any political interference”.

He added that it would benefit the banking system to present a single regulatory face to the outside world, so regulation of the co-operative banks should become the responsibility of the Central Bank.

Attracting foreign investment was also one of the themes of a speech Finance Minister Charilaos Stavrakis gave on Thursday evening to the Cyprus-Russia Business Association. Although speaking mainly on the economic crisis, Stavrakis said the government aims to maintain both Cyprus’ attractive business environment and the lowest tax regime in Europe, not only to encourage domestic business activity but also to bring in further foreign investment.

Referring to the fact that Russia is one of the island’s most important economic partners, Stavrakis said that the government’s strategic aim is to maintain and further strengthen political and economic relations between Cyprus and Russia.