AFP

NICOSIA

THE EU’s fiscal pact, intended to deter governments from running up more debt, should be supplemented with action to stimulate growth, new European Central Bank policymaker Panicos Demetriades said on Saturday.

“A strong safety net over employment and the living standards of citizens will put a stop to the further depletion of state revenues and, by consequence, a widening of deficits,” the newly-appointed governor of the Central Bank of Cyprus told a conference in Nicosia.

“An enrichment of the fiscal compact is required, or it should be combined with a strong framework of measures to stimulate growth,” he said.

Demetriades, who took over from Athanasios Orphanides earlier this month, is a strong proponent of stimulus and has long argued that an austerity drive must not sap output - a view that has gathered weight in the eurozone with the election of Socialist Francois Hollande as French president.

In his first public address, Demetriades told a conference of Cyprus’s bank workers union Etyk that a reduction in nonproductive spending should be linked to an increase in the quality and effectiveness of spending geared towards growth.

“Maintaining the fiscal compact agreed by eurozone leaders is a significant step towards restoring fiscal balance, but further recession amplified by austerity feeds a vicious cycle between a reduction in output and a widening in fiscal shortfalls,” the British-trained former economics professor said.