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Our View: Economic recovery will not last if we ignore lenders’ warnings

Finance Minister Harris Georgiades must know very well that the government has made a big blunder.

NOBODY took the least bit of notice of the advice issued last week in a joint statement by the European Commission and the European Central Bank (ECB), whose officials carried out the first post-assistance programme evaluation of the economy. The statement, which acknowledged the progress made while pointing out that it was not good enough, should have shaken everyone out of the complacency that has taken hold, but did not.

When our politicians are told something they do not want to hear by outsiders they react in one of two ways. They either go on the offensive, lashing out against the messenger or they go silent pretending they never heard the unpleasant truths, especially when they have no answer. They chose the latter option in the case of the rather critical observations made by the international lenders who cited the slowdown of the reform process.

The reform process has not just slowed down, it seems to have ground to a halt. On Monday Finance Minister Haris Georgiades warned that if the package of reforms for the civil service – been submitted to the legislature many months ago – was not approved before the end of the year, from 2017 we would again be faced with an uncontrollable public sector payroll. The majority of the parties, however, are not too keen on approving the bills which would limit the pay rises given in the public sector.

At least this reform package has not yet been abandoned as many of the other reforms agreed with the troika such as the introduction of a national health scheme (latest predicted date for its introduction is 2020), the privatisation of SGOs (these will stay under union control), and liberalising the electricity market (predicted date of implementation is now 2019, if unions permit it). Even the use of the insolvency and foreclosures legal frameworks, approved after months of brinkmanship by the parties, “has been limited” noted the international lenders who also spoke about the need to “increase administrative capacity and strengthen the efficiency of legal proceedings”.

In short, anything that was agreed but not implemented while we were in the assistance programme has either been abandoned or put off indefinitely. For as long as the release of funds was conditional on the implementation of reforms, we implemented them, but since we exited the programme we have returned to our old, irresponsible ways, the politicians dutifully following the path of least resistance. Everything that was achieved during the three years of the programme is now at risk of being destroyed.

Perhaps our politicians need to be reminded that the main reason the economy has returned to the growth path today is because they implemented the proposals of the troika. But the recovery will not last if they carry on ignoring the advice of the lenders.

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