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Our View: How far can the government’s economic measures go?

Finance Minister Constantinos Petrides

The announcement of measures to support the economy will soon become as frequent as those implemented to protect public health. It is to be expected when we consider how the measures have shut down thousands of businesses, leaving the majority of them without any revenue. The same applies for many of the self-employed who will have seen their income become zero overnight.

So far, the government has cut VAT from 19 per cent to 17 per cent and cut the rate on accommodation from 9 to 7 per cent. It has also suspended the increase in the health insurance contribution for April and May. On Wednesday the Central Bank, which had already lowered the banks’ capital requirements freeing up €1.3bn, decided to relax the criteria for giving loans as a way of encouraging banks to support businesses affected by the government measures.

After a meeting of the party leaders with the president on Wednesday, Finance Minister Constantinos Petrides announced more measures to boost the liquidity of small enterprises and businesses through “guaranteed loans, the subsidising of interest rates or a combination of the two.” He said there would also be consultations with the banks on how to “ensure that they would also take advantage of the flexibility provided by the ECB’s European support framework.”

Petrides said the “fiscal package we have already prepared is much bigger than the others in the EU,” but he admitted that the economic consequences of the health crisis depended “almost to an absolute degree on the measures taken that change every day.” The key factor is how long these measures will be in place. If it is for a couple of months, businesses will recover but if they are in place for six months no amount of economic measures will work.

This will be on business owners’ minds when they are offered guaranteed loans or short-term loans with repayment on maturity. How could they take a loan that would have to be repaid in three months, when they do not know when the crisis caused by the virus would be over? It is impossible to make any plans in these circumstances and we suspect that most businesses would not want to increase their exposure when there are so many unknowns.

And it is not only businesses that will suffer. What will happen to individuals who have been put on unpaid leave by an employer that has had to shut shop, the self-employed that have no work or people that have been made redundant? No banks will give them loans even if the Central Bank has relaxed its criteria. In this crisis, it is be the people that will have to be bailed out by the state.

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