Proper planning and strategy are needed to prevent a prolonged recession
A third interest rate hike is possible, even as early as October, according to European Central Bank (ECB) officials, at a time when energy prices and inflation are putting European economies under serious strain. At the same time, France and Spain are reeling from major crises that require serious reforms to prevent collapse.
All this is happening at a time when the U.S. President is causing turmoil in the markets and on international stock exchanges with his erratic handling of the war in Iran, while Putin continues to test Europe’s resilience with his coercive stance and the continuation of the war that began in 2022.
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The energy pressures facing Europe have significantly slowed down initial estimates for economic recovery and positive growth rates. The French economy is now very close to zero growth (0.2%), while even Germany is consistently experiencing significant losses in competitiveness due to structural problems and intense competition with China.
The European Central Bank’s response to curb inflation will once again be a gradual increase in interest rates. However, this will further cripple workers and businesses by driving up borrowing costs. The resulting mix is detrimental. If we add to this the—justified—demand for wage increases without, however, linking them to a parallel increase in productivity, the problem will escalate further and growth will slow down.
The possibility of a new economic crisis cannot be ruled out, although this time it is not expected to have the same characteristics as the shock caused in 2008–2011 by the collapse of Lehman Brothers in the U.S. Furthermore, the tools now available to the ECB and the Eurozone are clearly more powerful, as are the prevention and control mechanisms. However, proper planning and strategy are needed to prevent a prolonged recession.
High energy costs trigger a chain reaction, passing on costs to essential goods, food, and services, which in turn curtails consumption. At the same time, the cost of public debt, which is rising steadily in major countries such as France, Italy, and Spain, is causing serious concerns about gradual and prolonged pressure on the euro and European economies.
Europe and its member states must move swiftly to strengthen their resilience. This translates into energy independence, a rapid digital transition, attracting new capital, and radical reforms.
The situation in our own country is also unique, as it remains energy-isolated and is particularly vulnerable to geopolitical crises. Caution and vigilance are required. The government’s premature and incessant promise-making for pre-election purposes must be replaced with a resolute political will to implement decisions that have been languishing in drawers for years. This requires frameworks and regulations that will safeguard the progress and competitiveness of the Cypriot economy. Simply managing the numbers will not be enough unless there are groundbreaking reforms to reduce energy costs, improve the quality of the workforce, support and modernize the civil service and public education, crack down on cartels, and promote healthy competition.
By Xenia Konstantinou
Deputy Press Spokesperson, DISY
