Stavrakis makes bold assurances on Cyprus’ immunity to banks crisis
CYPRUS has the most stable banking system in Europe, giving it the advantage to deal with any consequences arising from the international financial crisis.
The assurances were made by Finance Minister Charilaos Stavrakis, who yesterday attended the House Finance Committee’s discussion on the possible effects the international financial crisis may have on the Cyprus economy.
“The combination of our robust banking system and the measures, which we can officially take if needed – meaning we will support and save any financial institution in danger – simply means that no customer of Cypriot banks is in danger of losing money,” Stavrakis told reporters after the meeting.
“This is fixed and more discussions and philosophies on the issue are not beneficial,” he pointed out.
“We are vigilant and if it emerges that certain sectors in Cyprus are being affected more by the financial decline, we have the means, we will discuss it with society and the social partners, and we will take measures to deal with any possible problems.”
Cyprus, Stavrakis added, has an advantage for four reasons: no investments were made in the so-called ‘toxic products’, banks and Co-ops are mainly supported by deposits from medium to small business and households, there is capital efficiency and the banks’ profitability levels are high.
Addressing the Committee earlier, the minister said the financial crisis being faced by the global markets was the worst since 1929.
According to Stavrakis, this big crisis in the international banking and credit system initially started with the refusal of banks to loan one another. Banks then went on to start refusing loans to businesses and now they will only invest in government bonds. This has resulted in an outbreak of panic, with the people of certain countries having no trust in banks.
Recent high-level decisions by the European Union, said Stavrakis, have given the Cyprus government the power to guarantee deposits and intervene if needed, in order to support banks that may face problems.
“The Cyprus economy is an open economy, which is mainly supported by tourism, trade, foreign investments and the supply of services, and if this crisis develops into an international recession, then there may be consequences in Cyprus too, which we will be able to deal with by maintaining double the growth rate than the EU average and combining the social character of our economy with the desired growth rate,” said Stavrakis.
Explaining the decisions of the extraordinary EU summit meeting, Stavrakis said “the leaders of the eurozone states made some decisions, which each government can adopt if it feels its banking system is in danger”.
He added, “The two main points are to guarantee banking loans between banks and to offer total support to any bank that is in danger, in any state”.
The minister pointed out that these measures have only theoretical significance to Cyprus, “as we have a strong banking system”, but it was good to have them as back up, just in case.
Asked to comment on state interventions abroad, such as England where banking giants have been nationalised, Stavrakis. “We have something that’s never been seen before: in England and Europe, the capitals of international capitalism, their banks are being nationalised.”
The main question, he added, was whether the international crisis would affect Cyprus’ real economy.
“We are an open economy, so we can’t be over-ambitious, but we certainly don’t need to panic and our economy has a strong background,” Stavrakis pointed out.
“At this moment, we foresee a small deceleration in the financial growth rate for 2009 – from 3.7 per cent which we initially predicted it will be around 3 per cent as things stand today – and on the other hand, inflation in Cyprus during 2009, due to the recent reduction into the price of oil and other basic need products, will reduce from 2.5-3 per cent which we had initially predicted for 2009, to 2-2.5 per cent,” he explained. “Therefore, we must have a significant deceleration in inflationist tendencies.”
Referring to the ‘many and grand developmental works’ that have been included in the budget, Stavrakis described them as the “oxygen with which we will maintain the high growth rates in the economy and if needed, we will speed up the realisation of these works so we can reinforce financial activities”.
There are, among others, 30 big developments worth more than €1 million each included in the 2009 budget.
“This year we have a very impressive reduction in public debt, which has dropped from 60 per cent of the GDP to 49 per cent, which we estimate it to be at the end of the year,” said Stavrakis, adding: “This extremely significant 11 per cent decrease in a GDP of €17 billion, saves us a potential €2 billion, which we can use to tone the economy if needed.
