By Karl Mueller
ECONOMICALLY cornered Cyprus has choices. Two are extreme: either limiting action to the minimum required by the MoU or transforming calamity and pain into opportunity and gain, by doing more than is being asked and trying to become the vanguard instead of trotting with laggards.
Comparisons being invariably between apples and oranges, a similar challenge existed in Austria after WW2. Though morally blind, Austrians soon “forgot” the recent catastrophic destruction. Armed with lots of determination, Marshall Plan assistance from American friends and from the EFTA and EU later, Austrians “fixed” themselves, reaching the EU’s top economic league.
Cyprus should emulate the best, excelling at what it is good at, financial services, tourism and shipping. More importantly, Cyprus should venture out of its comfort zone into new, game changing economic fields like photovoltaic energy and research.
Does this mean more pain and self-sacrifice? Not at all, in my mind. First, European institutions are – as amply shown lately – well-disposed towards helping Cyprus. You should not be ashamed to milk the EU programmes and funds etc to the utmost. We all do it in the EU.
But although Mr Van Rompuy, Mr Schulz and Mr Barroso have recently assured the president they want to help as much as they can, a tough fight over the next seven year EU budget, means every EU member state will want a big slice of the (small) cake, pleading “exceptional circumstances”.
And for this marathon of economic resurgence, the mauled government need not incur extra public wrath. The following is key: the government must limit itself to creating optimum conditions and legal frameworks. Most importantly it must enable the establishment of a mostly domestically owned private “Cyprus Emergency or Rescue Fund”.
In my article in The Cyprus Mail on May 15, I tried to envisage how Cyprus could get solar panels for free. Who pays for the installation and construction work? The government? It cannot.
Willing wealthy patriotic philanthropists (a lot exist in Cyprus) should establish this rescue fund to help make Cyprus a “GreenState” and this solar energy revolution possible. Low income people should be given preference and the money spent on installations should be repayable to the fund in long term (say, 50 years) installments (and without interest?). The fund should be used for everything that is not included in “photovoltaic gifts” proposed in my first article: from fixing panels on the roofs right up to start-up costs of tram, light railway systems, fully electricity-powered car systems and for improving badly lacking energy efficiency.
Its use should be decided collectively by the fund’s owners – which should also include the rich Cypriot Diaspora.
Rich Cypriots, company owners and foreign investors, who see their own lives’ work, earnings, plans and more evaporate before their very eyes will rightly argue: “First arbitrary shares, bonds and deposits haircuts, really only directed against dynamic wealth generators, ruining many of us. And now additionally financing a fund, not for our own benefit?”
True, admittedly, at first glance. But this fund would depend on fully voluntary contributions. The money would be paid back ultimately. And it would benefit every well-to-do contributor indirectly, and in more ways than one. Its existence would tell young Cypriots, who now see no prospects on the island and want to leave: “Look, we, the wealthy and successful, believe in Cyprus, in its future. So have patience, stay and help, maybe by modifying your own professional plans.”
Its existence would tell the (newly) poor: “Look, even if the state cannot, even with bust or strangled banks, we will look after you, nurture prospects for new jobs, prevent permanent destitution, desolation, cynicism. Like one big family, we will all stand together now.”
The existence of this fund would also tell potential foreign investors: “In spite of economic chaos, crippling capital controls and haircuts, of banks with a lifeline already cut or unsafely thin, in spite of scores of bankrupt companies, the citizens act responsibly. They obviously believe in the regenerative powers and reinvention of their country. So why should we not believe and trust?”
They would restart investing; possibly before credit ratings for Cyprus improve again, astonishing economic experts. Economic optimism is extremely contagious.
This special fund cannot, in my opinion, become linked with the bail-out agreement. First of all, the bail-out has been fixed. Secondly, this fund would consist of private, charitable, voluntary donations. It should neither be taxed (a second time) nor be tax-deductible. Thereby the owners should be free from any government control as well as from any troika interference.
Any change of the bail-out conditions – with the helping Eurozone partners trying to get a better, “cheaper” deal for themselves – would need accepting by and re-negotiating with Cyprus.
One comparison in this respect jumps to mind. Some big energy companies in central Europe have, after sudden energy policy changes by the state, either received compensation or “salvation” money (if state-owned) for the sudden “forced” change of their non-sustainable energy production business model. Or they are now suing for billions in damages and losses incurred because of “unilateral” political decisions. Cyprus would – with a similar forced business model change, partly through its own fault, but still uniquely pressurised at decision time in March – be doing nothing of the sort.
Laws should insist on every roof in Cyprus being compulsorily fitted with solar panels as soon as possible if funded upfront by the fund, starting, as remarked earlier, with the people hit hardest by the financial crisis and high electricity prices.
One last idea: 95 per cent of solar panels worldwide are almost identical. Like science fiction robots, they all look the same. This hides frequent incremental innovation in tiny, but, considering the volume, very important details, which upends the league table of the winners all the time. Innovate or die: the slow innovators disappear, and even the quick ones are ultimately eaten or destroyed by the fastest ones. Cyprus could, with a strong research and innovation push, develop high value, innovative photovoltaic solutions for low quantity production. In close cooperation, techno parks, research centres and universities in Cyprus could blossom with this new industry, all propelled and fuelled by solar energy.
Dr Karl Mueller is the Austrian ambassador to Cyprus