THE Island’s Central Bank Governor said that Cyprus needs an effective fiscal consolidation plan if it is to regain the markets’ trust.
Speaking to the local broadsheet Ο Φιλελεύθερος (Phileleftheros), Athanasios Orphanides warned that failure to do this “will trigger an exceptionally unpleasant downward spiral”. There could be painful cutbacks and steep taxes if the government delays addressing the economic problems which in turn will impact the Island’s role as an international financial hub.
He said austerity measures imposed earlier in the year, which included cutting back on student grants and child benefits and trimming public sector salaries, were “too little too late”.
The Finance Minister recently proposed further austerity measures including a two-year freeze on pay increments and a rise in VAT from 15% to 17%, but these have come up against stiff opposition from the labour unions.
Mr Orphanides said that the government and parliament have to work together to convince the unions to get on board because, as he put it, “Cyprus is at the edge of the precipice”.