Measures to stimulate growth should be combined with fiscal austerity to avoid a deterioration of deficits, European Central Bank council member Panicos Demetriades told the Cypriot edition of Kathimerini.
While Cyprus primarily asked for an international aid to recapitalize its lenders, the country has chronic structural problems and needs to cut unproductive public spending and deploy resources for investments, the Nicosia-based newspaper cited Demetriades as saying today in an interview.
The expansion of Bank of Cyprus pcl and Cyprus Popular Bank pcl abroad has created significant systemic risks and a possible solution is for the lenders to reduce their reliance on foreign assets, Demetriades, who is also governor of the Central Bank of Cyprus, told the newspaper.
The amount needed for the recapitalization of the banks won’t be known until an independent review of their loan portfolios, including their lending in Greece, is completed, according to Demetriades. The review isn’t expected to be completed before the end of October, he said.
Cyprus government bonds will be eligible again for use in ECB refinancing operations as soon as the country signs its international aid deal, which is expected next month, the governor said.