PRUDENT management of the economy did not last very long as an objective of the political establishment. It lasted for as long as Cyprus was in the assistance programme and excluded from the markets. The cause of prudent management was not helped by the relatively speedy recovery of the economy, boosted by consecutive record years for tourism and the citizenship by investment programme which ensured healthy growth rates and fiscal surpluses.
This created the ideal conditions for the politicians to revert to the old spending practices, displaying signs of the complacency that cost us so dearly in the past. Short-termism returned as our politicians, loosened the state purse strings and began spending as much as the state could afford without considering the idea of building reserves for a rainy day. All the cuts imposed on the civil servants’ wages were lifted, the state resumed hiring people in droves, pensions were increased, the fuel consumption tax was reduced, promises were made to help people who suffered losses as a result of the haircut and even people who repaid their loans will receive money from the state.
Nobody has questioned the return to fiscal laxness based on the assumption that economic conditions will remain the same. We always ignore what is happening outside the island so it is doubtful our politicians would have noted the warnings of a possible downturn in the world economy this year, which contrary to local political wisdom would have an effect on Cyprus as well. There might not be a downturn, but a responsible government would take some precautions to protect the economy just in case tourism was affected or the interest in passports declined; another worrying sign has been the gradual exodus of Russian companies.
The only person that has identified the possible dangers is the president of the Fiscal Council Demetris Georgiades who told Politis Radio on Tuesday that “we still have a very high public debt” (fourth highest in the EU at 111 per cent of GDP) and if there was a shock to the economy, “we would not be able to respond because of the high public and private debt.” His advice was “to save the surpluses so that when the crisis comes, we would be able to face it”.
No degree in economics or finance is needed to understand this very simple point, but the government and the political parties carry on pretending that no future risks exist, treating economic prudence as anathema. The problem is that that all politicians share this view and will ignore the warnings until it is too late to do anything.