SPEAKING on a local radio station some nine days ago, Nobel Prize winner, Professor Christoforos Pissarides put into perspective the economic successes the Anastasiades government likes to take the credit for. His evaluation of what had been done, did not receive much coverage, perhaps because he also spoke about the big economic benefits of a settlement, which would create jobs, stimulate recovery and lead to the modernisation of state structures.
Pissarides argued that we did not exit the assistance programme in record time because we reformed our economy. Although some correct policies were followed, he attributed the recovery to ‘fortunate’ events outside Cyprus. For instance, we were lucky that there was a recovery in Europe which meant an increase in tourist arrivals that was boosted by the problems faced by neighbouring countries. He was referring to the terrorist attacks at competing destinations that greatly contributed to the rise in demand for holidays in Cyprus.
Another piece of good fortune for the economy was the demand for passports. The sanctions imposed by the West on Russia led to an increased demand for passports by wealthy Russians from which both Cyprus and Malta benefited. There was similar demand in China where the government’s clampdown on corruption brought many Chinese to Cyprus. Through the investment for citizenship scheme, Cyprus raised half the money it needed, said Pissarides concluding that this was why “we exited the assistance programme so fast.”
Perhaps he should also have mentioned the investment of close to one billion – the biggest-ever investment in Cyprus – secured by the Bank of Cyprus, which helped stabilise the wobbling banking sector.
Tourism and citizenship for investment, however, was not a business model on which lasting economic stability could be built, he said, because these sectors were influenced by outside factors beyond our control. The real objective should be to make conditions attractive for business, something the government had failed to do. For instance, the time required to set up a business in Cyprus is much longer than the EU average; the delays in the legal system are much greater than the EU average. The government avoided addressing these problems and making the necessary structural changes that would help businesses and stimulate long-term growth.
This government spurned the opportunity provided by the assistance programme to make the big changes that would have put the economy on a sound, long-term basis. Like all its predecessors it opted for the short-term approach, the path of least resistance, in order to keep the unions and populist parties on side. Pissarides’ comments were welcome as they could shake the government out of its complacency and its commitment to quick-fix economic solutions.