By Stelios Orphanides
Finance minister Harris Georgiades warned that economic recovery is at risk as Cyprus has not completely healed the wounds of the 2013 financial crisis, with unemployment, bad debts and government debt remaining at high levels.
“My basic concern is related to the risk of being once again led on the road of irresponsibility, carried away by populism and emotions,” the finance minister told delegates at the Nicosia Economic Congress on Tuesday. “Irresponsible populism may risk everything achieved through sacrifices”.
The finance minister said that the banking system has stabilised and is “to a large extent consolidated even as important challenges remain,” while depositor confidence increased, allowing the lifting of capital controls two years ago and the full repayment of emergency liquidity by the Bank of Cyprus with interest rates at record lows.
Georgiades, appointed by President Nicos Anastasiades as finance minister days after depositors at Cyprus Popular Bank, widely known as Laiki, lost all their uninsured deposits in March 2013 while those at the Bank of Cyprus saw almost half of their deposits in excess of €100,000 turned into equity, oversaw the implementation of Cyprus’s economic adjustment programme and agreed with creditors in exchange of a bailout.
Cyprus only partially completed its reform programme after a combination of lack of resolve in the government and political and union opposition forced the government to succumb to populism. Two years ago, the government ditched the idea of privatising the state-owned power producer Electricity Authority of Cyprus and a year ago it shelved plans to privatise the state telecom Cyta. In March, it agreed to the demands of medical staff at public hospitals for higher pay, which the government opposed until 12 months ago, citing the high cost which could undermine the introduction of the national healthcare scheme, another reform pending for almost two decades.
In December, the parliament rejected a bundle of reform bills aiming at overhauling human resource management in the public sector.
The finance minister said that he expects the economy to expand around 3 per cent this year, as well as in 2018 to 2019, helping reducing unemployment seen at around 13 per cent last year. “What matters most is that this growth is sustainable as never before,” as it is not the result of “reckless spending,” he said.
Cyprus achieved in the first fiscal year following the completion of the adjustment programme to generate a fiscal surplus of 0.4 per cent of economic output and a primary surplus of 3 per cent, he said. “In the first quarter of 2017, there was an improvement of 0.3 per cent of gross domestic product compared to the respective one last year,” he said.
Georgiades also commented on events in Europe where “populism is on the rise,” making a special reference to France’s elections which catapulted Marine Le Pen, the leader of the xenophobic Front National into the second round where she will face Emmanuel Macron, who never held an elected office in the past.
“It originates from both the left and the right,” he said. “Protectionism and the distance to common sense are common ground”.
“One of Macron’s most remarkable approaches is that related to reconnecting the European Union with citizens,” Georgiades said.