IT IS EXACTLY one year since the first Eurogroup decision that proposed a hair-cut on all bank deposits to generate the funds needed to stave off state bankruptcy. The proposal was rejected by the defiant parties in House of Representatives – even pro-government Disy refusing supporting the bill and abstaining – in the unjustified belief that we could find an alternative source of funds or secure a better deal
The finance minister flew to Moscow in the vain hope President Putin would bail us out, while economists in Cyprus were arguing that we should hold out as the decision would cause contagion in the euro-zone and force the Europeans to reconsider. Before the second Eurogroup meeting scheduled for the following Sunday, the resolution bill for Laiki Bank was submitted to the legislature, sending shock-waves across the country and exposing the hollowness of our powerless politicians’ fighting talk.
The decisions of the second Eurogroup meeting, on March 24, at which President Anastasiades was faced with a take-it-or-leave-it choice, were much worse, but he was forced to take it because the alternative was bankruptcy and an exit from the euro. An ultra-harsh restructuring regime was imposed on the Bank of Cyprus that included the bail-in of shareholders and depositors, the transfer to it of Laiki’s €9 billion ELA debt, which the government could not repay, and the fire-sale of its operations in Greece, at a small fraction of their value, because Greece’s banking system had to be protected from contagion.
State bankruptcy was avoided thanks to the €10 billion loan from the troika but the rate of deterioration of the economy was accelerated. A year later, unemployment is still rising, fast approaching 20 per cent, NPLs at local banks and co-ops are close to 50 per cent, interest rates remain the highest of the euro-zone and the future of thousands of businesses is in the balance. The government however, ignores all this and boasts about the positive progress reports it has earned from the troika. These relate primarily to the state sector and have nothing to do with the real economy, for which the only positive is the forecast that its rate of contraction would slow down.
This perfectly sums up the consequences of the MoU. The public sector, which together with the banks caused the economy’s collapse, has been protected by the government, while the private sector has been suffering the real consequences of the bailout, in the form of higher as well as new taxation, extortionate interest rates and capital controls. The overwhelming majority of people on the dole queue were private sector employees while those who are still in work have seen their wages drastically cut and not always paid on time.
The smallest pay cuts were experienced in the broader public sector, which despite the government’s declarations about downsizing has hired an additional 800 workers in the last year – 300 graduates of military school were hired by the National Guard that already has too many officers and 500 contract teachers were given permanent jobs, at a time of contracting classes. Our politicians have learnt absolutely nothing from what has happened and continue with the same irresponsible, profligate policies that led to the collapse, as if their only responsibility is to safeguard the high living standards and privileges of public sector employees, at the expense of the rest of us.
This was an opportunity to drastically cut the public sector payroll and make it viable in the long term. It was an opportunity to ensure public employees contributed towards their pensions and retirement bonuses, like everyone else does, but the government did not have the guts to put public finances on a sound and rational basis. Even in the case of the increase in the social insurance contribution private sector workers are having an additional one per cent deducted from their wages but public employees, only half a per cent.
Instead of seizing this opportunity to rationalise state finances and bring public sector wages in line with the private sector and the size of the economy, the government chose to reduce its deficit by increasing its tax revenue, thus reducing the falling disposable income of the lowest-paid workers and putting an additional squeeze on struggling businesses. No better, our parties and their wise deputies continue the politics of reckless populism, championing the causes of privileged public sector workers and opposing bills included in the memorandum.
A year on, the economy may be in ruins and poverty spreading at an alarming rate, but nothing has changed in the way the country is run. We seem to have learnt absolutely nothing from the mistakes of the past.