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.”
“It is evident that the Eurozone and the European Union in general need to ascertain themselves and become more competitive,” Patsalides said. He added that there have been many studies — referring to the Draghi report and others — that make recommendations as to how this can be achieved.
He pointed out key areas for progress, including the completion of the Banking Union, the creation of a Capital Markets Union, enhancement of the single market, and the development of 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.”
Call for progress on Capital Markets Union
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Patsalides said there is now concrete momentum behind efforts to advance the Capital Markets Union, long viewed as essential to strengthening Europe’s financial base. “I do see progress,” he said. “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 pointed to specific proposals such as the Single Market for Investments and the so-called “28th regime”, an additional European legal framework designed to overcome national fragmentation in financial regulation. “Fragmentation is a real issue in Europe,” he warned. “We have 20 different legislations. It is important that we come up with initiatives that overcome this fragmentation with the view to enlarging capital markets in Europe.”
The Governor also noted the gap between Europe and the U.S. in financial depth.
Patsalides added 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.
Cypriot economy shows strength amid uncertainty
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On Cyprus, Patsalides said the domestic economy continues to perform strongly. He said that the growth rate today is around 2%, unemployment is at historically low levels, public finances are recording fiscal surpluses for numerous years now, and debt-to-GDP is very near the Maastricht criteria. Inflation, he added, has come down to almost zero percent.
He attributed this resilience to diversification, with new sectors such as technology and professional services playing an increasing role, and to a robust banking system with very strong capital and liquidity ratios, among the highest in the Eurozone.
However, he cautioned that Cyprus remains vulnerable to external shocks, given its openness and dependence on external demand. “There is uncertainty, primarily because of geopolitical uncertainty, trade tensions, and other developments in the financial sector,” he said. “The economy needs to focus and remain vigilant,” the Central Bank Governor noted.
Market risks and high valuations
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On global financial markets, Patsalides acknowledged concerns about high asset valuations, especially in the US. “Valuations are quite rich,” he said. “To some extent it is justified by the evolution of technology and recent developments in AI. But if you look historically, they are quite high.”
He talked about a risk of a market correction at some point, adding that “the question is whether this correction will be small or large.”
Patsalides warned that high public debt levels across advanced economies pose another long-term risk. “The European Union’s public debt-to-GDP is 88%, supposed to be less than 60%,” he said, adding that the same applies in the US.
“This is a risk. I think there are risks on both sides of the Atlantic,” he said.
Digital euro moving into operational phase
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The Governor also confirmed significant progress in developing the digital euro, which he called a very important project.
He said that last Wednesday, the Governing Council of the ECB approved entering into the second phase of preparations, which entails the operating part of the creation of the digital euro, systems, piloting and planning.
He said the legislative framework could be completed by the end of the Danish EU Presidency, with some elements likely to continue under Cyprus’ term.
Describing the digital euro as “a safe asset, a central bank currency in digital form,” Patsalides said it could also provide a foundation for the creation of other safe currencies and eventually other types of safe digital assets.
CNA/TNE/EPH/2025
ENDS, CYPRUS NEWS AGENCY
