Nicosia: The Eurozone economy remains weak and risks falling behind global competitors unless it moves decisively to deepen financial integration and competitiveness, Cyprus Central Bank Governor Christodoulos Patsalides said in a live interview during the 21st Annual Economist Cyprus Summit. While acknowledging that the Cypriot economy remains remarkably resilient, he stressed that the euro area as a whole is expanding at only around 1%, a rate he described as ‘low.’
According to Cyprus News Agency, Patsalides stated, ‘It is evident that the Eurozone and the European Union in general need to ascertain themselves and become more competitive.’ He mentioned that there have been numerous studies, including the Draghi report, that provide recommendations on achieving this. He highlighted key areas for progress, such as completing the Banking Union, creating a Capital Markets Union, enhancing the single market, and developing a proper venture capital ecosystem to boost innovation and startups. ‘These are important initiatives,’ he said, ‘and the European Union needs to move on if it wants to play internationally.’
Patsalides emphasized the momentum behind advancing the Capital Markets Union, considered crucial for strengthening Europe’s financial base. He noted, ‘I do see progress. I can vouch for the ECB – it is an active matter continuously on our agenda. The will is there and there is planning on behalf of the European Commission.’ He also mentioned specific proposals like the Single Market for Investments and the ’28th regime’, a European legal framework aimed at overcoming national fragmentation in financial regulation. ‘Fragmentation is a real issue in Europe,’ he warned, highlighting the importance of initiatives to overcome this.
The Governor further pointed to the gap between Europe and the U.S. in financial depth, adding that Cyprus’ upcoming Presidency of the Council of the EU in 2026 could help drive this agenda forward, including further work on capital market integration.
Patsalides also spoke on Cyprus, noting the domestic economy’s strong performance. He reported a growth rate of around 2%, historically low unemployment levels, fiscal surpluses for several years, and a debt-to-GDP ratio near the Maastricht criteria. Inflation, he added, has almost reached zero percent. He attributed this resilience to diversification, particularly in technology and professional services, and to a robust banking system with strong capital and liquidity ratios.
However, he cautioned that Cyprus remains vulnerable to external shocks due to its openness and reliance on external demand. ‘There is uncertainty, primarily because of geopolitical uncertainty, trade tensions, and other developments in the financial sector,’ he said, emphasizing the need for vigilance.
Regarding global financial markets, Patsalides acknowledged concerns about high asset valuations, particularly in the US. ‘Valuations are quite rich,’ he noted, urging caution about a potential market correction. He also warned that high public debt levels across advanced economies pose another long-term risk, citing the EU’s public debt-to-GDP ratio of 88%, which should be less than 60%.
Furthermore, Patsalides confirmed significant progress in developing the digital euro, describing it as a crucial project. The ECB Governing Council recently approved moving into the second phase of preparations, involving operational aspects such as systems, piloting, and planning. The legislative framework could be completed by the end of the Danish EU Presidency, with some elements likely to continue under Cyprus’ term. Patsalides described the digital euro as ‘a safe asset, a central bank currency in digital form,’ which could provide a foundation for other safe currencies and digital assets.