By Stelios Orphanides
The cabinet decided on Wednesday to establish an “Economy and Competitiveness Council” (ECC) and appointed economists, a former politician and businesspeople as members, surprising Nobel laureate Christopher Pissarides who chaired its predecessor.
“The council will be flexible and effective and will comprise a chairman and eight members with a three-year term,” the finance ministry said in a statement. “The recommendation provides among others, that councils must operate without depending on any other public authority.”
The body tasked with proposing “concrete policy measures” succeeds the defunct national economy council set up by President Nicos Anastasiades five years ago after Cyprus signed a bailout MoU with international creditors.
The new body will be chaired by Takis Clerides, who served under late former president Glafkos Clerides, as minister of finance.
The other members are Elena Andreou, the head of the University of Cyprus’ Economic Research Centre, Hellenic Bank’s chief economist Andreas Assiotis, Pavlos Photiades, managing director of Photos Photiades Group, which produces Carlsberg beer in Cyprus, economist and hotel director Giorgos Kitazos, economist and political scientist Andreas Psaras, founder of Makkas Winery, former PwC accountant Tasos Anastasiou, senior finance ministry official Giorgos Panteli, and former Akel lawmaker and anti-austerity academic Bambos Papageorgiou.
The national economy council was chaired by Pissarides, who shared the Nobel prize for economics in 2010. A year after the council was founded and amid speculation in the press that his departure was related to the government’s reluctance to listen to the advice of the advisors it appointed, Pissarides decided to relocate to the UK, which he did in 2015.
“Our council died a natural death when we got out of the MoU,” Pissarides said in an email, adding that the establishment of the new body was news to him. “I have not communicated with the government – or vice versa – for years. You would think there would be a ‘thank you and good bye’ but not to my knowledge.”
Pissarides said the national economy council had positive feedback from auditors of the International Monetary Fund, the European Commission, and the European Central Bank – the troika – who supervised Cyprus’s bailout. Cyprus agreed to a bailout in March 2013 and completed it three years later.
“The troika members said that they were the most useful meetings that they had in Cyprus because we took a non-political approach to reforms and were completely independent of any party,” Pissarides said. “But after the troika’s departure meetings with officials ceased and –coincidently – I moved the family base to London, which would not have stopped us meeting as I do come frequently to Cyprus but it may have contributed,” he said.
“After the MoU it became very difficult to have any useful input in government economic policy and especially long-term reforms, which I think are desperately needed in Cyprus but virtually none took place in the first Anastasiades term.”
The economist, who currently teaches at the London School of Economics and in 2013 had officially backed Anastasiades’ candidacy, said that the island’s economy needs “an awful lot” of reforms to ensure the sustainability of public finances despite the “excellent job” done by Finance Minister Harris Georgiades on budget and short-term policy.
He advised action to reform the public sector – which he described as a “difficult” task with the government unprepared to take the necessary decisions – and the implementation of a policy to protect Cyprus’ attractiveness as a tourist destination.
“Our tourist business model needs updating too before our beaches become unattractive even to us locals,” he said. “We cannot continue being the bottom country in Europe in just about every statistic on performance that is published internationally. It’s embarrassing and unsustainable.”
The government proposed a bundle of reform bills to overhaul the public sector three years ago, which the parliament ultimately rejected. The proposals were welcomed as a step in the right direction by economists but were not seen as ambitious enough. Two years ago, the government presented its master plan for the tourism industry, which is still the subject of a debate by stakeholders.
In its attempt to encourage economic activity, the government introduced a Golden Visa scheme, which allows investors acquire the Cypriot citizenship or a permanent residence permit.
As investor interest is concentrated mainly on real estate, construction companies erect high rises and luxury villas, raising fears for the environment. Tourism accounts for about a quarter of Cyprus’ economy, directly or indirectly.
“I wish the new council all the best,” Pissarides concluded. “If they manage to get the government to pass 10 per cent of the reforms needed in this country they will have succeeded.”
The economy, which exited a prolonged recession in 2015, expanded 3.9 per cent last year aided by a 5 per cent increase in consumption. Growth in turn helped the government produce a fiscal surplus of 1.8 per cent of economic output and unemployment fell below 9 per cent.
While these ultimately helped Anastasiades win a second term in February, the island’s banks, plagued by a 45 per cent non-performing loans ratio, are still under pressure and the government was compelled to pump another €2.4bn in taxpayers’ money into the Cyprus Cooperative Bank to stem a bank-run.