Cyprus Mail

The same but different

By Angelos Anastasiou

IRELAND is the first country to exit the troika adjustment programme. Will Cyprus struggle with the same realities, and are there lessons we could learn from Dublin?

“We made proactive decisions to avert disaster, not like some third-world country that spends every last penny available and ends up at the mercy of its lenders.” The Irish official smiled amiably and waved his arm out to some unspecified country far, far away in the body-language equivalent of ‘present company excluded, of course’. Still, journalists from various Eurozone countries in town for a European Commission seminar on Ireland’s experience with the troika adjustment programme, almost blushed as the subtext sank in. The large, ninth-floor executive-board meeting room with the breathtaking view of Dublin moments earlier buzzing with jovial chatter went utterly silent as his statement sunk in.

The man had been almost indignant at one journalist’s suggestion his country could have weathered the storm of panic among international investors that hindered its borrowing options by turning to its cash reserves in anticipation of better days, instead of appealing to the tripartite of the European Commission, the European Central Bank and the International Monetary Fund – the troika – for help back in 2010, even though mere minutes earlier he had argued that said panic was largely unjustified and transient. He thought it wildly short-sighted and unforgivably irresponsible to even entertain the theoretical notion of attempting to pass the buck.

He was also making another point, a subtler but perhaps more resonant one. The perceived causal relationship between the virtually nonexistent social unrest of the Irish people during the crisis and the discreetly voiced charge of favourable treatment towards Ireland in the form of accommodating lending terms by the troika was the result of a false-cause fallacy, he seemed to imply. While it’s true there never was a Movement O’Indignants protesting in any of Dublin’s squares, that wasn’t because the Irish got a better ride than the Greeks, or the Spanish, or the Cypriots. Rather, both phenomena were the direct result of a third variable, for which the Irish now revel in wide-grinned pride: owning the plan all along, end-to-end, start-to-finish. The Irish realised they had got themselves in a predicament and decided to get themselves out, no free-rides or hand-outs or somethings-for-nothings, went the argument. The buck stopped with them, as their transatlantic friends would say.

It’s a powerful argument, not least because actions speak louder than words. In November 2010, roughly a month before the troika was tagged in, the Irish government unveiled a four-year National Recovery Plan, which subsequently formed the blueprint for the troika-imposed Irish adjustment programme, and went on to adhere to it almost religiously.

Cyprus appears unable to follow in Ireland’s footsteps. Stakeholders can’t seem to grasp the big picture – unions seem stuck in their default reaction of negativity, various groups focus on the need for everyone to help as long as ‘everyone’ isn’t them, and some even actively try to sabotage the government’s solutions when it’s lucky enough to come up with any. Cypriots don’t want to own the plan; they’re happy with trying to get someone else to own it for them.

Further, the Irish government honestly admitted to facing trouble early on, not allowing the country’s assistance needs to bloat to impossible levels – its bailout package of €85 billion seems meager in comparison with those agreed for Greece, an economy of roughly comparable size, at €240 billion and counting.

As is so often the case, the sublime effortlessly brings us to the ridiculous. “Cyprus’ bailout programme would have been less severe had it heeded suggestions from the Commission to seek an EU bailout rather than ‘doping’ itself with a loan from Russia,” commissioner Ollie Rehn said. Cyprus was in dire need of a bailout for quite some time before it actually asked for one, but was too slow to admit it, and things worsened fast.

To conclude with the list of reasons why it got off relatively easy with the troika-spanking, and possibly why it was the first to successfully exit its adjustment programme, Ireland topped the least-corrupt index for 2013 among the troika-aid recipient countries at 21st overall out of 177 countries under review. By comparison, Cyprus ranked 31st, Portugal came in at 33, Spain was 40th, and Greece secured the last spot among the group at 80th place.

The example of property-tax reform illustrates the point perfectly. Pre-adjustment Ireland had failed to identify a remarkable property boom as a dangerous property bubble and relied heavily on revenue from property transactions. When the bubble burst, so did much of the revenue – which is partly where the country’s initial fiscal woes came from. Predictably, it took the troika no time to suggest scrapping the old system in favour of a less capricious one: levying a tax on property ownership. The reason was that the former is transitory in nature – property transactions raise revenues in a healthy market but fall dramatically during financial turbulence – whereas the latter is the very definition of stability. But what was most surprising was the look on Irish officials’ faces when they narrated the story. It was a look of excitement and achievement, of having done some good.

Cyprus had its own burst property bubble, excessive lending by its banks, and a narrow tax base, culminating in fiscal disaster. The Irish financial crisis is similar to that of Cyprus in some respects and different in others. But the handling of the crisis in the two countries seems miles apart, particularly when it comes to people’s attitudes – and this is how scornful Irishmen get to reference obscure “third-world countries”.

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