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Our View: Opportunity for real reform not grasped

Averof Neophytou

THE LAST state budget of the assistance programme was approved by the legislature on Thursday night. It was passed by the votes of DIKO, DISY and EVROKO while the left of centre parties voted against, presumably because the deficit would not be large enough to satisfy their populist demands. Their criticism centred on persistently high unemployment, the survival problems facing small businesses and reduced spending on development.

This is what we would expect to hear from parties that have learnt nothing from the collapse of the economy three years ago and are still under the illusion that growth and job creation is the responsibility of the state, which has a moral obligation to spend money it does not have. Conventional political wisdom in Cyprus, greatly influenced by AKEL’s communist ideology, that sees the state at the centre of everything remains unchanged. This is one reason for the strong political opposition to the planned privatisations – it goes against the state control philosophy of AKEL and its fellow travellers.

Another reason for stepping up the anti-privatisation rhetoric is the imminent end of the adjustment programme, the parties bracing themselves for life after the troika. All the populist irresponsibility of the past is slowly resurfacing – not that it ever went away but it had been more subdued in the last couple of years – and DISY chief Averof Neophytou was right to sound a warning on Friday about the dangers of returning to our old ways as soon as we exit the programme. He also had a point, when he said that some people were sad that the troika would leave.

The truth is that we did not take full advantage of the opportunity for real reform of the economy provided by the assistance programme. The government did the bare minimum of what it was obliged to do under the memorandum, not daring to go a step or two further when it had the chance. On the contrary, just a few months after the signing the memorandum President Anastasiades was giving promises to public employees – with bank workers the least affected by the recession – that that they would not be asked to make any more ‘sacrifices’ and they were not. Less than a year after the signing of the memorandum the government even tried to buy two frigates at a total cost of €100 million, but was prevented from doing so by DISY.

Unfortunately, it is difficult to trust Anastasiades not to engage in mindless spending as soon as we exit the programme. The state has not only been hiring people throughout the programme, despite the freeze on appointments, but the government has also opened a host of new positions and had plans for creating posts for deputy ministers. Despite the freeze on wages and new appointments in the public service and the plan to cut jobs the public sector payroll and pensions will remain the same as it was last year in 2016, at €2.507 billion.

It is very difficult under the circumstances to believe Finance Minister Haris Georgiades’ assurances that disciplined spending and the shrinking of a large public sector would continue. We have no reason to doubt the minister’s intentions, but the final say on such issues belongs to the president, who is not half as committed to fiscal discipline. As Neophytou said, the familiar, pre-memorandum tunes had started being heard already in anticipation of the imminent post-troika period.

This is why nobody should be lulled into a false sense of security by the cautious and sensible 2016 budget, the deficit of which will be close to zero. It was between 0 and one per cent the previous two years, but that was because the troika was supervising economic policy. With the troika gone, the possibility of supplementary spending bills being tabled at the legislature to cover new appointments in the public sector could not be ruled out. There is the independent fiscal council now, with the responsibility of monitoring state spending, but its powers remain unclear. Could it stop a government on a spending spree or just issue warnings?

The truth is that very few of our politicians could be trusted to support responsible economic policies or take unpopular decisions when there is a need. All difficult but necessary measures of the last three years were taken because the troika was calling the shots. We can only pray that the lenders departure would not signal a return to the old ways.

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