at one the UK’s best universities. Following what is going on in the world today, I can safely say that what I was taught is rubbish! I had to go back to basics and look at the economy for what it is: a control mechanism that works in a very simple way. What is bringing the real money into Cyprus? There was a time when it was selling shoes. We failed to control quality and to create a light industry strategy and that’s why we don’t make shoes anymore. There was a time when it was tourism but we failed to control what it was that we were giving to visitors over and above our Godgiven sun and sea. You only have to look at the numbers of tourists that go to places like Majorca and Turkey and compare them with the figures for Cyprus to see that we are still not doing things properly.” He accuses Cyprus as still having the mentality of a trader (“You buy a container of something, you sell it and that’s your transaction closed”) instead of thinking like an industrialist (“I am making an investment to protect this and make it last for the next 25 years”). He is also nostalgic for the concept of master craftsmanship which once existed here: “We need to bring it back into business and the economy,” he says. “When I look at a Swiss product and I see ‘Made in Switzerland’ I know that behind it lies craftsmanship. If I receive a Cypriot product, I am likely to say ‘Oh my God, is this going to work?’ I want to see the concept of craftsmanship coming back into everything we do.” For this to work, he says, Public-Private Partnerships are the key. “Most of the work done in the public sector is administration so why not introduce e-government and do it online? Outsource things to the private sector and get the civil servants to monitor the quality that is coming out of the private sector which is much better quality at the moment. By making the public sector monitor quality, you automatically elevate its own quality. And it will be at no cost to the state. There are companies ready to go to the government and say “I will take over all your government functions on the administration side under a 20-year contract where I build the system, operate it and transfer it to you in 20 years’ time. We’ve seen it with the airports.” Athinodorou is involved in a private
The island needs to decide what is going to lead the economy and build a support system round it sector initiative which is promoting this and other ideas to the banks. “The money we’re talking about is miniscule compared to their reserves,” he says, “and they will gain most from it in the initial stages because they’ll be distributing the money that will be coming in. This will shift the false perception abroad about money leaving Cyprus when deposits are actually doubling every month. We can show that in the middle of a crisis, with the banks being downgraded by all these ‘questionable’ international rating agencies, the country is moving to create a new, more efficient infrastructure. We can actually rebrand Cyprus. We are small enough to fly under the radar and any small change that we can make in the right direction will have such a huge benefit that we can be out of this in less than six months. However we need to act now. We need to take focused action in the direction that can bring in quick results.” The government’s austerity measures do not meet with his approval (“You cannot cut costs in a recession and hope that you’ll have growth”) but he is hopeful that the potential revenues from natural gas will be utilised wisely. “We have a choice. If we take the money and throw it in the money pit that we have at the moment, then we will end up becoming another Venezuela, a bankrupt country of civil servants. But if, before we get the money, we take the time to imagine a better world, when it comes in we can take the country in a direction beyond our wildest imagination. Cyprus can become financially important in Europe if we play our cards right as a financial centre. Moreover, at a time when Turkey is changing its policy and turning away from America, Israel and the EU in favour of Islam, Cyprus as the potential to lead the EU initiative for a unified international foreign policy. I strongly believe that despite Cyprus’s small size we can make a difference.”
The Number That Killed Us: A Story of Modern Banking, Flawed Mathematics, and a Big Financial Crisis By Pablo Triana (John Wiley & Sons, 2011) RRP: £26.99 (£17.89 from Amazon.co.uk)
T
he devastating financial crisis that began in the summer of 2007 and led to staggering losses for the banking industry, a global economic recession, and an implosion in government finances was caused by two main factors: toxic assets and leverage. But why did banks and other financial institutions take on this “toxic leverage” in the first place? Because an immensely powerful, but little talked about, mathematical model told them to. Known as Value at Risk (VaR), this model inaccurately projected no risk for some clearly worthless assets, insisting that they could be accumulated worry-free. Intoxicated by the promise of short-term profits, the banks listened, and disaster followed. Explaining the key reasons behind this and previous market crises, Triana provides a comprehensive overview of the development of VaR – a story fraught with mathematical wizardry, intriguing characters, and financial drama. VaR, the mathematical ruler of the past twenty years and one of the most influential forces in finance, is finally seen for what it really was – flawed and impractical. A fascinating study by a fine author.
the international investment, business & finance magazine of cyprus
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