By Stelios Orphanides
After fighting on the side of the Romans in their war against Antiochos III, the Rhodians secured significant gains through the Treaty of Apameia of 188 BC. The Seleucid king had to cede all his possessions in Asia Minor west of the Taurus to the victors, pushing the boundaries of his kingdom eastwards to Syria. On the other hand, the territory of the small island republic increased six-fold and included Caria and Lycia, the Asian Minor territories across the sea. As a result, the island-state suddenly shared borders with other powerful, though weakened, but still dangerous states.
Back then, Rhodes was the Mediterranean’s centre of trade thanks to its naval force which commanded the seas and its tax system, which provided only for minimal duties on commodities traded on Rhodian soil. All this allowed trade to flourish and revenue flowed into the state coffers. Rhodes’s naval law was so well designed it served, centuries later, as the model for Venice.
Rhodes’ immense wealth, which allowed it a century earlier to erect the Colossus – an almost 100-feet bronze statue of the God of the Sun at its port, erected to celebrate victory over Cyprus and considered one of the Seven Wonders of the world – together with its somewhat increased political influence, made Rhodians more ambitious and more audacious vis-a-vis their weakened neighbours. At some point however, Rhodes’s assertive foreign policy backfired as it prompted their former allies to regard it with suspicion.
When the Romans later felt challenged, is signalled the end of island republic. The Romans decided to give Delos, a tiny island in the heart of the Aegean Sea, the privilege to tax merchandise traded in its port at an even lower rate than that of Rhodes. As the Rhodian economy lacked other significant sources of revenue, state revenue plummeted and with that, its military and naval power declined. Rhodes, like every other island and country in the Mediterranean, would become part of the empire ruled in the name of the Senate and, supposedly, the People of Rome.
The Rhodian state, although it did not collapse as abruptly as the Colossus, which was destroyed by an earthquake in 226 BC, had a few things in common. They were both ignored externalities and were, as a result, ill-designed and built on weak foundations.
To a certain extent, the situation of today’s Cyprus resembles that of ancient Rhodes. Cyprus too bases its economy on weak foundations, one of which is its attractive tax regime, which is, falsely, believed to be the source of prosperity. There is an impression that Cypriots believe that an economic model based on attracting foreign business alone is sufficient to guarantee prosperity, even today, when more than one in ten Cypriots has no job and the country is heavily in debt. What is however more alarming is that this economic model has an expiry date, at least in Europe. The formation of a common front by all political parties to fight against the EU’s proposed changes in unlikely to help.
The recent debate sparked in Europe by the Panama leaks, the Lux leaks or the Bahama leaks prompted the European Parliament and the European Commission to propose measures to effectively fight tax havens and money laundering and introduce more transparency in doing business. Cypriot politicians and parties – well-known for their tendency to engage in long, meaningless and fruitless debates about matters of no consequence – have suddenly united in a front against Europe under the slogan “No to Everything,” and are likely to anger countries much more powerful than Cyprus.
We all know the shortcomings of our economic model; it’s neither a model nor economic. It is mere opportunism. It’s based on a mixture of unsophisticated, randomly chosen policies to generate short-lived revenue to pay for the imported goods we consume and do not (and cannot) produce. As this revenue is not enough to pay for that, attracting brass plate companies to Cyprus, companies which have no substance but are here to pay (low) taxes, was believed to be the answer.
Hence the common line of the six Cypriot members of the European Parliament at a meeting with journalists on Wednesday to oppose corporate tax harmonisation. Surely, not every foreign-owned company is in Cyprus exclusively because of its low-tax regime. But the mere existence of this tax system is perceived as a big issue by the majority of European Parliament members who consider defending it as an affront.
On top comes the practice of securing foreign investment in Cyprus by offering, in exchange, EU-passports and visas; the fact other EU countries follow this practice does not legitimise it. This industry is operated by developers, accountants, financial services providers, real estate agent and lawyers. Unsurprisingly, the economic model of the country is designed to satisfy the interests of those effectively running it.
But as the history of Rhodes teaches us, prosperity generated from low tax regimes is at best fleeting. It only takes someone to outbid you and you are out of business. Instead of maintaining a hard line on the corporate tax issue — Cypriot members of the European Parliament ruled out even agreeing to the introduction of a minimum tax rate of 10 per cent compared to Cyprus’s 12.5 per cent, as it would be a precedent towards further upwards harmonisation– it would be more prudent to think about how to wisely reform the economy, the education system and healthcare. Cyprus missed its first chance to do so three years ago, just like the Rhodians failed to realise early enough that their state was constructed on weak foundations, just like the Colossus which collapsed in 226 BC, 62 years before they were too subjugated by the Romans.