Remarks by Athanasios Orphanides, Governor of the Central Bank of Cyprus, at the ceremony to celebrate Cyprus’s entry into the euro area
Nicosia, 18 January 2008
Dear President of the European Central Bank, Mr. Jean-Claude Trichet,
Distinguished guests,
Ladies and Gentlemen,
We are very honoured to have you here with us today to celebrate the entry of the Central Bank of Cyprus into the Eurosystem.
The historic transition from the Cyprus pound to the euro brings to an end the monetary system that has been in existence in Cyprus since the establishment of the Central Bank of Cyprus in 1963. The pound has served us well and has proved to be a strong currency throughout these years. Indeed, the stability of our currency was a key factor that helped pave the way towards the integration of our country into the European Union.
The integration of Cyprus into the euro area is undoubtedly a defining event in our island’s economic history. Cyprus is now part of the select group of European Union Member States with a strong common currency that not only serves over 300 million of our fellow European citizens but is also a major international currency and reserve unit for the rest of the world.
By joining the euro area, our country’s role as well as its responsibilities within the European Union have been elevated. The right economic conditions necessary to face the new challenges are in place: Cyprus has achieved a high degree of sustainable nominal and real economic convergence with the core of the European Union and has enjoyed price stability as well as a healthy rate of economic growth and high levels of employment.
The Central Bank of Cyprus has played a crucial role in securing the appropriate economic conditions for our island in the past and will now continue to do so albeit in a different context, as a member of the Eurosystem. Since the beginning of the year we have joined this independent system of central banks which includes the European Central Bank and the national central banks of all EU countries that have adopted the euro. The Eurosystem offers great promise and opportunities for the euro area member states. Most importantly, it is responsible for preserving price stability in the euro area, which constitutes a critical precondition for reaching our potential for stable and sustainable economic growth.
By completing our integration in the common European market, the introduction of the euro in our country offers tremendous opportunities for further development and growth. With these opportunities come new important challenges, however, and it is up to us to face up to these challenges and fully exploit the opportunities presented to further the welfare of our citizens.
This is a crucial moment in our nation’s economic history. We have the choice to shape a better future not only for us but for generations to come. We must be careful not to allow obsolete attitudes and practices that are no longer effective in the context of the euro area to hamper our potential progress. To be sure, many existing economic recipes worked relatively well in the past under different conditions. We must be mindful, however, that not all such practices can continue to work equally efficiently in the present circumstances and in the future.
Being in the euro area means that monetary policy in our country is identical to that of all other countries with the common currency. Giving up monetary policy at the national level elevates the importance of sound fiscal policy to maintain economic stability. It also places a premium on structural reforms aiming to increase productivity and improve our international competitiveness and hence our standard of living. For these reasons, it is imperative to follow prudent policies and advance the necessary conditions to reap the potential benefits of the euro.
Drawing from the experience of other success stories among euro area countries, we can be optimistic about the future of our economy. But the magnitude of the success depends very much on our choices. The opportunities presented to us with the adoption of the euro should be fully exploited. We owe it to our children and to our grandchildren. Indeed, we owe it to all future generations of Cypriot European citizens who can live and prosper with the euro.