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Our View: Politicians ignoring the stark economic reality of endless handouts

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One of the recurring issues of the election campaign is the need to protect small businesses and the self-employed. All the opposition parties have embraced this cause, demanding that the government provides additional financial support during the recovery, as their efforts to suspend the payment of rents was ignored by the government.

Concern about the future of small businesses, shops and the self-employed is expressed regularly by the parties, which argue that the government is not doing enough to help them pull through the crisis. “The danger of mass closures of small businesses in the next months is very visible,” said the Akel spokesman Stefanos Stefanou on Monday, warning that “thousands of small businessmen, self-employed and shopkeepers are in danger of being wiped off the economic map of the country.”

Even after the end of the pandemic, these businesses would continue to face problems of viability, excessive borrowing and liquidity as well as rent arrears and non-performing loans, said Stefanou. Targeted support had to continue even after the pandemic so these enterprises could survive and the problems of rent arrears, evictions and foreclosures could be dealt with. This warped economic thinking may have been expressed by the leftists of Akel, but it is shared by all the opposition parties that want unviable businesses with NPLs propped up by state handouts and the indefinite suspension of foreclosures.

The Central Bank of Cyprus introduced some orthodox economic thinking last week with the release of its annual report for 2020. In the introduction, the governor Constantinos Herodotou addressed the issue and referred to the dangers of extending support measures for too long. “This could act as a distortion to the restart of economic activity by sector and increase the number of unsustainable enterprises that remain in operation, harming productivity and delaying recovery,” he warned. This would also “pose a risk to the sustainability of public finances (public debt and budget deficit), with significant negative implications in relation to the determination of the investment grade of Cypriot bonds by the rating agencies, with everything that this entails for the country’s borrowing costs.”

Unfortunately, the governor’s warnings did not have much of an impact on the election campaign, because everyone has to be seen to be on the side of small enterprises and the self-employed. They represent tens of thousands of votes and no party – not even Disy – would dare oppose the call for extending the support measures. The reality, however, is that the state cannot keep paying money it does not have (the public debt is 125 per cent of GDP) to keep afloat enterprises that were unviable before the pandemic struck and cannot survive without state handouts.

 

 

 

 

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