By Stelios Orphanides
Nobel Prize laureate Christopher Pissarides has said that he does not expect a repetition of the political mistakes and omissions which plunged the Cypriot economy into the 2013 crisis.
But he warned that the economy was still not competitive and is relying on the investment for citizenship scheme and a temporary tourist bonanza, the Cyprus News Agency (CNA) reported.
Pissarides, who in 2010 shared the Nobel Prize for economics together with Peter Diamond and Dale Mortensen, was commenting at a panel discussion in Nicosia on Thursday.
“The situation is no longer in our hands but in those of the European Central Bank (ECB) which will not allow for something like that to happen again,” he said.
The high stock in non-performing loans in the banking system, accounting for almost half of the total portfolio of banks, is not the biggest risk factor in the economy he said.
Since December 2014, the ECB, through its Single Supervisory Mechanism, is responsible for the supervision of four systemic Cypriot banks, Bank of Cyprus, Cyprus Cooperative Bank, Hellenic Bank and RCB Bank, jointly with the Central Bank of Cyprus.
The economist attributed the 2013 banking and fiscal crisis to excessive consumption, non-productive investment, mistakes of banks and inadequate supervision by the Central Bank of Cyprus, the CNA reported.
Pissarides also blamed the government under former President Demetris Christofias for not taking timely action and the economy’s weak fundaments.
Pissarides, who in 2013 supported the candidacy of Nicos Anastasiades who in turn appointed him as head of the National Economy Council, an informal body set up to advise the government following the dramatic events of 2013, relocated in late 2014 to the UK. Press reports attributed his decision to displeasure about government policies that defied the council’s recommendations.
He said he did not expect the next elections to change much because of the strong influence of political parties, seen as a source of distortions, including entitlements and bureaucracy, which don’t allow sectors of the economy to exploit their potential.
While public finances are today in a better shape, they are not solidly based, Pissarides said. He added he was concerned that this may be linked to the prevailing circumstances, including foreign investment in exchange for the Cypriot citizenships or the current bonanza in the hospitality industry benefiting from low quality tourism flows, which is not a sustainable model for the tourism industry.
Other than taxation where Cyprus is known for its low corporate tax rate, Cyprus is not competitive in any other area, he said.
Pissarides said that society should be concerned about distortions which result in Cyprus faring much worse compared to other European Union members, including the area of education, where the Cyprus spends disproportionally more than other member states to get the worst results.
“As a Cypriot, I am insulted that the best school in Cyprus was set up by the colonialists and we have still not managed to establish schools at that level,” he was quoted as saying.
Co-panellist Demetris Georgiades who chairs the Fiscal Council, a body tasked with monitoring fiscal developments, said that high growth rates that followed the 1974 Turkish invasion were a source of complacency which in turn allowed excessive lending which ultimately led to the crisis.
He added that fiscal challenges have not been tackled yet.