Pascal Donohiu [President of the Eurogroup]: Strong performance of the Cypriot economy – Forecasts for a recovery rate of over 4% in 2021 and just under 4% in 2022

Eurozone countries will be able to run budget deficits until 2022, in order to support their economies, as the pandemic is not over, stresses the President of the Eurogroup, Minister of Finance of Ireland, Pascal Donohue, noting that after the summer there will be debate at European level on restoring eurozone fiscal rules.

In an interview with KYPE, on the occasion of his visit to Cyprus, Mr. Donohiu said that he is not worried about the increase of public debt in the EU compared to the pre-pandemic era. The debt may be higher, however, due to the actions (monetary policy) of the European Central Bank and government decisions, such as those taken by Cyprus, the debt will be manageable as the careful deficit reduction begins, as the health condition.

In addition, the Irish Ministry of Finance stressed that the performance of the Cypriot economy was very strong during the pandemic due to government decisions, is expected to show strong growth rates in 2021 and 2022, while the Recovery and Sustainability Plan will further support the economy's ability to recover. At the same time, while Cyprus is in public consultation for the new development model, Mr. Donohiou recalls the crisis that hit his country a decade ago and notes that there should not be too much dependence on one sector and capital investment in productive sectors. .

“I believe that the Cypriot economy has performed very strongly during the pandemic and I believe that your government and the Minister of Finance have done an excellent job of supporting the economy during the coronavirus pandemic,” he said.

Referring to the forecasts for a recovery rate in Cyprus above 4% in 2021 and slightly below 4% in 2022, he said that this is “performance that is really strong given how catastrophic the pandemic was last year”.

“My view is that the Cypriot economy is performing very well given the magnitude of the challenges it has faced and I believe that your government has done a very good job on the Recovery and Sustainability Plan, which will make an additional difference to the capacity of the economy. to recover “, he noted.

At the same time, Mr. Donohiu recalled the crisis that hit the country in the last decade mainly due to excessive dependence on the real estate sector and stressed the need to diversify the economy and increase the sectors that contribute to production, but also to channel capital investment in sectors. such as transport and education.

“And I believe that steady annual increases in capital investment, while not always attractive, are in fact laying the foundations for the country's development over a decade,” he said, when asked what message he would like to send while Cyprus is in through public consultation on the future model of economic development.

Deficits until 2022, investments in the environment and digitization

Asked about priorities to ensure recovery from the pandemic, Mr Donohiu said: “We are not done with the disease and the crucial first step is to continue our efforts to protect our fellow human beings, so that we can prepare until the disease will exist, but it will no longer be a pandemic.

“Therefore, this year and next, I think the focus remains on how to support and protect our economies, we will run deficits this year and next, maybe a smaller deficit next year if the health situation improves.”

In relation to the post-pandemic era, the Irish Ministry of Finance noted that the key features will be investments in digitization and the digital transition.

“We need to spend and invest more in the transition to a low-carbon, zero-carbon future, and the second is how our digital future should be. “How are our economies changing due to the increasing pace of digitalisation?” He said, adding that this transition could be difficult and fraught with challenges, but that size and geographical location within the EU would no longer be the characteristics that will determine the performance of the economy.

“Because there will be huge opportunities for countries that will achieve the transition to low emissions and digitization in the future, whether it is Cyprus or larger economies,” he added.

The Stability Pact is complex, but it has allowed flexibility

Asked if it was time to review the Stability and Growth Pact, which sets fiscal rules for eurozone member states, Mr Donohiu said the commission's decision to activate the avoidance clause, deactivating fiscal rules until next year. time, it was a reasonable decision, which helped to create flexibility so that the Member States could respond to the coronavirus crisis.

“And after the summer we will have a debate (at European level) on the future of fiscal rules, but it will take time,” he added.

While acknowledging that concepts such as output gaps are not widely understood, Mr. Donohiu noted that the complexity of the rules is what has allowed for flexibility.

“I believe that the simpler the rules, the less flexibility,” he said.

At the same time, he pointed out that if the rules were not in force before the pandemic hit and if countries were called upon to deal with the crisis with deficits, “God knows where we would be now trying to manage the pandemic if we all entered the crisis running deficits years before the coronavirus “. He added, “Therefore, while fiscal rules do not have many friends, I believe they have had a positive impact, helping us prepare for the unknown.”

I'm not worried about a debt crisis

Asked to comment on concerns about a possible debt crisis in the EU due to the pandemic, the Irish Ministry of Foreign Affairs said that he was not worried about such a possibility.

“I believe that the level of debt, while it is higher compared to the pre-pandemic era, due to the actions of the European Central Bank (ECB) and the sensible decisions taken by governments, such as the Cypriot one, if we proceed carefully to reduce “As the state of public health improves, I believe we will manage the higher levels of debt.”

“And I think we should look to the future with caution, but with hope, we can win the pandemic, allow our economies to grow, get people back to work and avoid the terrible difficulties we had a decade ago.” .

ΚΥΠΕ