13 SUNDAY MAIL • July 1, 2012
Opinion
Now, we have a chance We shouldn’t view our resort to the EU as losing control of our economy but as an opportunity for much-needed change Comment Theodore Panayotou
W
HEN things get tough, the tough get going, and things have certainly have gotten tough for Cyprus with the economy coming to a screeching halt after three decades of impressive growth. A combination of internal imbalances and external shocks have led to rising budget deficits, tripling of unemployment and successive downgrading of our economy and our banks from triple-A to junk status. What is to blame? Entering the eurozone unprepared to compete as the world economic crisis was unfolding in combination with our procrastination in taking corrective measures proved deadly. But not all is lost. Our being forced into the arms of the European Facility for Financial Stability (EFSF) is a blessing in disguise which may very well prove to be the beginning of another Cyprus economic miracle. First of all it removes the discretion from our politicians and gives them the alibi they so badly need in order to take unpopular measures to remove the accumulated distortions in our economy, from the over-bloated public sector to the inflexible labour markets, from the maze of bureaucratic procedures to the unjustified privileges and handouts. Second, the resort to the EFSF for help drives home the lesson that the “opportunitist” or “serendipity” economic model, which proved so generous for Cyprus, does not always guarantee economic growth and prosperity as it depends too much on luck and circumstance and too little on the fundamentals of international competitiveness. It exposes Cyprus to risks and external shocks and deprives the economy of internal resilience. The lesson is that, instead of relying exclusively on serendipity, Cyprus should rediscover the hard work ethic, enterprising creativity, and social responsibility that led to the Cyprus economic miracle in the two decades that followed the devastation from the Turkish invasion of 1974. In the same way that the 1974 loss of one third of the country and two thirds of the economy removed the comfort zone and the claim of the few to privilege and drove
home the need to imagine, to create and to produce real value, today’s loss of control of our macro-economic management to EFSF will soon remove the barriers to change and prepare the ground for the new economic miracle. Think of the new Cyprus with a lean and highly productive public sector which facilitates rather than inhibits private sector initiatives; a one-stop shop public service with a minimum of bureaucracy where a willingness to help and a can-do attitude permeates every transaction; a public sector that does not close for siesta when the rest of Europe is hard at work. Think of a new Cyprus with a labour market that is flexible, providing job security and good wages by its agility, job creation and productivity not by privilege, and acquired right. Think of labour unions that strive to create jobs for the 40,000 unemployed instead of striving to preserve and enhance the privileges of their members regardless of their levels of productivity. Think of a new Cyprus with banks that know how to evaluate investment projects, how to assess and manage risks; banks that invest first and foremost in building a sustainable economy at home instead of spreading themselves thin across the globe and exposing themselves to risks they don’t understand and cannot manage. Think of a new Cyprus with an education system that is decentralised, student-centred and promotes moral values, creativity, innovation and enterprise instead of the current centralised teacher-centred system that promotes conformity and routine memorisation and guards the privileges of the teachers rather than the learners.
It may well be the kick in the pants we need to unleash the great reserve of potential that has been released before at times of crisis
Cyprus should rediscover the hard work ethic that characterised us after the invasion Think of a new Cyprus that invests in research and innovation, that promotes experimentation and entrepreneurship to create wealth and jobs rather than relying on a strange mixture of statism and serendipity; a Cyprus in which development does not mean just lending and borrowing money for land purchase and land development but investing in the knowledge and creativity of its human resources. Think of a new Cyprus where the environment and all our natural and cultural heritage are respected and invested in as valuable assets and a source of competitive advantage rather than degraded for convenience and quick profit by the state and business alike. Think of a new Cyprus as an educational and research centre, as an energy and logistics centre and as a centre for conventions and medical tourism; a Cyprus that invests in research and development of renewable energy and in green and energy-efficient buildings and infrastructure; a Cyprus that exports solar energy technology instead of importing oil; a Cyprus that develops downstream industries from its newly found natural gas rather than simply exporting it to finance its budget deficits. Think of a Cyprus of balanced budgets, of manageable national debt, and of a viable social security system; a Cyprus which deposits its budget surpluses and its revenues from natural gas exploitation in a Future Generations Fund for long-term investments and adverse times instead of recur-
rent expenditures and distortionary subsidies. Finally, think of a Cyprus that offers to foreign investors not only a pleasant climate, a good infrastructure and a low corporate tax but also world-class educational and health services, personal security, an attractive natural and cultural environment, efficient public services and competitive energy costs. This vision may seem like a tall order but our appeal to the EFSF for help may well be the kick start of the trajectory for a new Cyprus. It may well be the kick in the pants we need to unleash the great reserve of potential that has been released before at times of crisis and produced an economic miracle every time. Those who look for opportunities to invest in emerging high-return ventures with manageable risk must give serious consideration to investing in the emerging new Cyprus. This will give them a head start and a preferential stake in Cyprus’ next economic miracle. Dr Theodore Panayotou is the Director of the Cyprus International Institute of Management (CIIM) and Professor of Economics and the Environment at Harvard University, served as consultant to the UN and to governments in the US, China, Russia, Brazil, Mexico and Cyprus. He has published and was recognised for his contribution to the Intergovernmental Committee on Climate Change won the Nobel Peace Prize in 2007. Contact: theo@ciim.ac.cy
The foreigners are coming to sort us out Comment Loucas Charalambous MUCH as it hurts our ‘national dignity’, all we who recognise the perilous situation to which our worthless and incompetent politicians have led us felt a sense of relief after the developments of the last few days. At last, the Troika is coming. The foreigners are coming to sort us out. Thank God. Nobody can know how much bigger a disaster President Christofias would have caused had he succeeded in securing another loan from the Russian Federation or China. It is fortunate for Cyprus that the Troika arrives here tomorrow to take over from him the running of our economy.
It is inevitable that people will be wondering what the Troika will do. What conditions will it impose on us? How much will we suffer? We hope the Troika technocrats will identify very fast - if they have not already done so the root cause of our problem so they can sort it out. But even if they are not aware of it, they will not need very long to identify it as every rational person living in this country has done so a long time ago. All our problems stem from the huge cost of the public service, the nightmarish result of the accumulated political populism of 40 years and the scourge of Christofias for the last four years. I have repeatedly argued in the past that the only remedy for our constantly deteriorating public finances would be the drastic
downsizing of the public service. It is criminal for the state to maintain departments for services that could as easily be provided by the private sector. This is the only way to drastically cut the huge cost of the state sector that has been literally plundering state coffers. In addition to this, all the super-privileges enjoyed by public employees such as the non-contributory pensions and retirement bonuses, the scandalous allowances, etc should be abolished. I will repeat something I wrote 12 years ago that I think illustrates the scale of the problem. The public sector payroll of Cyprus absorbs 31 per cent of annual state expenditure and is one of the highest percentages in the world. The average of the EU
is about 13 per cent; even Greece had a lower percentage than Cyprus at 22 per cent. We should also note the following: of 20 African countries for which the IMF provides data, only seven were worse than Cyprus. These figures illustrate more than adequately, the scale of our problem. Our public debt has been steadily growing so we could pay the high wages, generous pensions, allowances and other privileges of our over-large number of public employees. In the last couple of years, everyone, apart from Christofias and AKEL, had been urging the union bosses of PEO, SEK and PASYDY to show a sense of responsibility so as to avoid the need of applying to the support mechanism. But they would not budge, a stance fully supported
by AKEL and Christofias. They spouted the familiar rhetoric about workers’ conquests and workers rights so they would not lose the super-privileges, paid by borrowed money. A year ago, this column warned the militant PASYDY boss Glafcos Hadjipetrou that a consequence of his intransigence would be the arrival of the IMF in order to sort things out. It would be Hadjipetrou and his members that would be crying in such a case. But Hadjipetrou remained defiant, announcing this week that he does not fear the Troika. That’s fine. Tomorrow the Troika will be here Mr Hadjipetrou and we will welcome it but I suspect you, who paved the way for its arrival, will be among the first to voice regret for this achievement.