The plan to restart the Cyprus economy announced by President Nicos Anastasiades on television on Wednesday, and detailed by Finance Minister Constantinos Petrides on Thursday in a news conference, has been well-received, overall, by economists and analysts.
“The 13 measures do their best to replace the €1.5-€2 billion guarantee scheme which opposition parties decline to support,” comments Fiona Mullen of Sapienta Economics.
“The government’s measures constitute the biggest state intervention since the establishment of the Republic. It is a decisive intervention that provides direct support to workers but also to the businesses of our country,” explains former finance minister Harris Georgiades.
There are still unanswered questions: the cost of all these measures is not fully understood, because many depend on applications by businesses. In these conditions, it is very difficult to estimate this figure, and the tepid response to the Estia scheme does not bode well for it.
It is clear that no aspect of the plan depends on the EU ‘Next Generation proposal’, which will have to go through several stages of approval.
In fact, many of the measures depend on tried-and-true mechanisms that have served Cyprus in the past. Others are pre-approved by the European Investment Bank (EIB) which is taking on a pivotal role in this plan.
The Pan-European Guarantee Fund, for example, was only just set up on Tuesday by the EIB to serve SMEs. The fund will provide state guarantees to the EIB which will then make loans. This will be a rapid and efficient source of funding, according to one analyst.
“The EIB Group will be able to provide existing products to local banks and other financial intermediaries, who are in close contact with businesses in all Member States and can unlock financing to the real economy, without risking financial instability,” the bank explains on its website.
Anastasiades said Cyprus is expected to tap between €300m and €400m from this fund.
On the other hand, the Cyprus Entrepreneurship Fund, intended to provide about €800 million, is a joint venture of the EIB and Cyprus that has been functioning for some years. “It is a Risk Sharing instrument: local bank shares with CYPEF the risk of the loan to the enterprise. CYPEF’s funding is priced at around one per cent, reducing the interest rate for SMEs; the aim is to facilitate access to finance for smaller size / higher risk SMEs at improved terms,” the EIB website says.
“This project is the most interesting,” says Mullen. “These loans are managed by the European Investment Fund, so I hope they help kick-start all the green and other smart investment we will need to attract the next generation of tourists.”
Clearly this is a lot of money moving from the public sector to the private sector. “This is a concern: We do not want to create conditions in which the private sector loses its independence,” warns Sofronis Clerides, chair of the Department of Economics at the University of Cyprus.
Isn’t there also a danger of supporting ‘zombie’ companies? “Certainly,” says Mullen, “But there is also a general view globally that this is the only way to go right now. That’s why it is important how the money is spent. If it is just going to more concrete tower blocks, then we are finished.”