By George Psyllides
CYPRUS’ economy was like the mythological figure Icarus, whose waxen wings melted when he flew too close to the sun, a European official said on Monday, describing the state of affairs that led to the economic collapse, forcing the island to seek a bailout.
“The economy was flying high all right, but with wings of wax and feathers,” said Maarten Verwey, the European Commission’s deputy director-general for economic and financial affairs.
Verwey, who heads the Commission team that is part of the troika delegation dealing with Cyprus, said the problems of the global crisis had been ignored.
Reforms were postponed and banks took additional risks “probably in an attempt to meet the profit target”.
“It was very clear that Cyprus’ economy lost its feathers, went into a tailspin and crashed,” Verwey said.
The Commission official acknowledged that the adjustment undertaken by Cyprus was “admittedly painful” but he said international lenders would assist “to the best of our abilities.”
He said Cyprus was doing well so far but significant challenges remained.
“There are no miracle solutions,” he said, adding that the economic situation would remain tough throughout 2014 but Cyprus was expected to return to growth the following year.
Among the challenges faced by Cyprus was the completion of the banking sector restructuring, “exceptionally high non performing loans,” and phasing out capital controls, introduced – but gradually relaxed since – in March following the EU’s decision to seize deposits.
IMF mission chief to Cyprus Delia Velculescu said much had been accomplished in a relatively short timeframe since the approval of the stability programme.
Velulescu said that “given the ambitious adjustment that is already underway, additional measures are only envisaged in the outer years and these are needed to place public debt on a sustained downward path”.
She added that Cyprus authorities have committed to complement efforts with structural reforms to strengthen budget processes, improve revenue administration, privatise state-owned companies and revamp the welfare system.
The IMF official said the difficulty of the authorities’ task should not be underestimated, as the recession continues and large risks remain.
Velculescu reiterated that recession in 2013 is projected to be less deep than initially envisaged, however it is expected to continue through next year, with a total cumulative contraction of close to 13 per cent.
Finance Minister Harris Georgiades reiterated the government’s determination to push on with reforms in a bid to bring the economy on a sustainable path.
“We have an action plan. It includes much of what should have been done in Cyprus a long time ago. It is a plan that aims to fix the public finances and the banking system,” among others, the minister said.
“We have a plan, let’s stay focused and let’s do the job.”