The Minister of Finance, Konstantinos Petridis, estimates that the increase in the yields of the Cypriot bonds will not put Cyprus in a difficult position in terms of access to the markets and the servicing of the public debt. The debt reduction will continue, while the financing needs are covered for 2023, a fact that does not put pressure on the markets to exit in conditions of increased yields for the eurozone bonds.
“We borrowed on time, before increase efficiency by meeting our needs for both 2022 and 2023. According to & # 8217; “Expansion of interest rates is something that the Cypriot economy can withstand with its debt being not only completely sustainable, but also in a declining course”, says YPOIK.
To the question whether he is worried about the possibility of even a recession in 2023, the Ministry of Finance answers in the negative. “I believe that we will have positive growth rates despite the uncertainty that prevails at the international level.”
Mr. Petridis also emphasizes the need to continue an economic and fiscal policy that will lead to a further increase in the creditworthiness of the Republic of Cyprus and consequently to a further reduction of the country's borrowing costs. For & # 8217; This is what Mr. Petridis considers crucial in the forthcoming presidential election. submits a four-pillar roadmap.
“There are no magic formulas,” he says.
“Public debt pricing is directly related to the country's macroeconomic data and prospects. If we want a lower yield on Cypriot bonds, we must continue to follow the quadruple “:
1) Continuous debt reduction and return to fiscal surpluses.
2) The highest possible growth .
3) Further reduction of non-performing loans.
4) Faithful implementation of the reforms contained in the Recovery Fund.
& # 8220; Policies that will lead to an upgrade of our investment level and a reduction in the yield of our bonds. Policies that are often not popular. Και γι & # 8217; this the next government will be decisive. With difficulty we managed to be a little above the investment level, to borrow on better terms than in the past and to be able to respond to the pandemic period. If these policies are reversed due to populism, this will not only lead to a further increase in the yield of Cypriot bonds, but will also keep us out of markets, and this will be catastrophic. We have experienced it in the past “, he warns.
ECB and interest rates
Regarding the decisions of the ECB, Mr. Petridis characterizes the reaction of the monetary authorities to the rise in prices as delayed and the long period of expansionary monetary policy as wrong.
“(Inflation) was something that was entirely to be expected & # 8217; to me, despite the differing assessments of the ECB and the Commission. I said it publicly from mid-2021, as I said that inflation would not be as short-term as they said. Knowing how the Fed works, it was also expected of me that in America interest rates would rise and the ECB would be forced to follow suit to keep the value of the euro against the dollar.
Look, a very long period of expansionary monetary policy followed with zero or negative interest rates, wrong & # 8217; me, which also created distortions. Now the increase will be more painful than & # 8217; what if it happened faster, but with today's data of intense inflationary pressures due to the war in Ukraine, high consumption, and green policies it was logical that it would happen. Like all countries in the near future, of course Cyprus will have increased borrowing costs and increased debt repayment costs.
But as I said it was something we had anticipated, for & # 8217; we did a very sound financial and debt management, we did not borrow too much, we went on with debt repayments normally, and we did not give in to popular calls that would derail this course.
And let me note something here. Expansionary monetary policy (as, of course, fiscal policy) is not a panacea. Nor is the consequent over-indebtedness. They often create overconsumption. They make wrong decisions about private investment that would not be made if interest rates were higher and savings were worthwhile. And if these investments were made in the future, when market conditions would make them more sustainable. They increase inflation. They are creating bubbles in real estate whose price is rising, resulting in huge housing problems for citizens and especially for the vulnerable and the middle class. Something we are seeing all over Europe now. Of course we politicians like to see money flow into the market, and we call it growth. The issue is that this development is sustainable and that we do not see things only with a short-term lens “.
Fiscal space and measures
Regarding the adoption of new measures to alleviate inflationary pressures, Mr. Petridis reiterates that “any fiscal measures must be be targeted, now help only the vulnerable to prevent energy poverty. That is, they should have the meaning of social policy, since expansionary fiscal policy not only can not kill the monster of inflation, but instead offers it food to reap it. And I admit that the Recovery Fund and ongoing horizontal programs also contribute to this, “he added. “Fiscal margins will only continue to exist if we maintain fiscally uncontrolled horizontal policies through prudent fiscal management so that we can intervene where appropriate for the vulnerable.”
