A FEW weeks ago, a seminar was held in Nicosia about economic illiteracy, because it is believed to be very high among members of the public. The seminar did not deal with GDP and macroeconomic indicators, but with helping people manage their finances in a rational and sensible way – living within their means. What a pity that none of our deputies and party big-wigs attended as they may have learned a few basic things.
Then again, we cannot expect very much from deputies who have reduced economics to a few nice-sounding but meaningless slogans. We heard all these again yesterday when opposition politicians were commenting on Thursday night’s televised news conference by President Anastasiades. “We need development, not austerity measures,” the government “has to abandon the neo-liberal policies of the troika,” the “real economy is struggling” and “nothing is being done about unemployment.”
The assumption is that the economy, which is gradually emerging from the worst recession in the country’s history, is ready to take off and all that was required was for the government to spend a couple of billion euros on development. Nobody has told us where this money, which the state does not have, would come from. Should the government increase taxes or borrow from the markets to spend on development? Both options would end in disaster. The first would stifle business, lead to job cuts and eventually cause another recession. The second would eventually lead the state to bankruptcy, exclusion from the markets and the need for another bailout.
Is it so difficult for our political parties to understand that the state, like a household or a business, needs to live within its means to remain solvent? It can borrow money for specific needs, but only if it is in a position to pay it back, but Cyprus’s public debt is too high to allow heavy borrowing. Of course the real economy (is there a false one as well?) is struggling and unemployment is high, but these are consequences of the deep recession, which cannot be overcome overnight, as some deputies were suggesting.
The economy suffered a devastating shock four years ago, the banking system collapsed, banks have still not tackled their NPLs and thousands of businesses are still struggling. There may be modest growth, but a full recovery could take years, if it happens. Both the state and businesses were living beyond their means, on bank credit, for many years creating big distortions in the market that are being corrected. What deputies are proposing with their mindless slogans is a return to the practices that caused the collapse.
Fiscal consolidation and a balanced budget are not austerity measures, but the responsible and rational way of managing an economy and keeping it healthy. Unfortunately, this seems too complex a concept for opposition politicians to understand.