THE CENTRAL Bank is furious at being ignored by the Finance Ministry in the government’s search for solutions to the economic crisis, it emerged yesterday.
Governor Athanasios Orphanides was even excluded from Finance Minister Charilaos Stavrakis’ briefing on proposed measures given to the political parties and social partners on Tuesday and was only aware of the meeting through the media. The Governor was in Cyprus and available, said a Central Bank official who would not have spoken to the Cyprus Mail yesterday without Orphanides’ approval.
“Unfortunately, neither the Governor nor any other [Central Bank] officer was invited to participate in the meeting, despite the invitation referring to an examination and discussion of the problems facing the Cyprus economy,” said the official.
“We’ve been ignored. The Governor is on the island and is available. This is the first time there has been such bad communication between Finance Ministry and the Central Bank. It is sad, but at the same time it is alarming. There is harsh financial news ahead of us, so we all need to face this together.”
The official said it was “absolutely necessary” for the Central Bank to participate in meetings aiming to resolve the problems facing the economy, to ask questions, give its views and offer answers.
“Reading about the outcome of the meeting in media reports does not amount to an accurate briefing. We shall therefore not be expressing any opinion whatsoever on the proposed measures,” said the official.
“The Central Bank has always had the best economists and financial analysts on the island. If anyone thinks they can solve the problems facing the economy without us, they are very much mistaken. We have the analysis and the solutions, but no-one is asking us. We are being ignored, at the expense of the economy and the tax-payer. The Governor is not a layman, his views on the economy are not the same as anyone else’s.”
Speaking to the House Finance Committee on November 27, Orphanides described the country’s economic situation as “critical”, and called for cuts in public spending, better long-term planning and structural economic change.
Expressing his particular concern over “the significant deterioration of the fiscal deficit, particularly from 2010 onwards”, Orphanides said that “the fiscal deterioration we are facing is structural in nature.”
He also stressed that, especially during difficult periods of high fiscal deficit and recession in the real economy, budget planning cannot be carried out on the basis of just one year’s figures. “It is not right for planning to be done on the basis of temporary measures”, he said, adding: “The sooner the structural changes required for managing the public finances happen, the smaller will be the cost and the sooner we will achieve sustainable growth and prosperity.”
After Orphanides gave his position, DIKO Vice-President Nicholas Papadopoulos, AKEL spokesman Stavros Evagorou and DISY Vice President Averoff Neophytou all agreed publicly that fiscal discipline and structural changes were needed. Yet Orphanides was excluded from Tuesday’s crucial briefing.
Former Finance Minister Michalis Sarris told the Mail yesterday that what was “absolutely necessary at the macroeconomic level was for public finances to be controlled, starting with reducing government spending in order to reduce the budget deficit within a set timeframe.”
“We also need dialogue and consensus to do what is necessary in the shorter term, but the problem is that we all – government bodies, political parties, employers, trade unions – have not shown any indication of the will to make the necessary changes to the economy.”
“The most important thing is to balance the public budget, starting with the state payroll and other spending. We need to make more focused choices, the kind already made by other countries – like Spain or Ireland, for instance – that are facing far worse problems.”
“We’re not in such a bad state as them, but we could be heading in that direction. The question is: do we make some necessary and manageable changes now, or do we put things off and have to make more difficult and far-reaching changes later, with potentially far greater social cost and social friction?”
The issue seems to boil down to how far Stavrakis’ outlined proposals go in terms of answering this question.
Glafcos Hadjipetrou, General Secretary of public employees union PASYDY, referred to the proposals on Tuesday as “tinkering”, at the same time saying that the budget problem would be solved if the government went after tax-evaders. This might be true in terms of short-term budget considerations, but leaves aside the issue of structural economic problems.
The timeframe for finalising and implementing a package of effective measures – quite apart from the question of how those measures might evolve during a period of political wrangling – poses its own problem.
Referring to Stavrakis’ list of 22 specific measures to grant new powers to the Inland Revenue and VAT departments for combating tax evasion – which were approved by the Council of Ministers three weeks ago – a Finance Ministry source confirmed to the Mail yesterday that “it will take up to four months for the whole package to be finalised and put into effect”.
“The measures are still being discussed with the social partners and political parties, and then they will have to go through the legislative process with the House committees and plenum. These things take time to work through the process”, the source said.
ONE OF the measures proposed by the Finance Minister on Tuesday was to reduce the state’s contribution to the public employees’ occupational pension fund.
Andreas Charalambous, Director of Economic Research and European Affairs at the Ministry of Finance, told the Mail that the question of public sector pensions will form part of the negotiations to renew the three-year collective agreements between the government and PASYDY in the New Year.
Charalambous said: “As part of our review of where savings can be made in public spending, we are looking at the occupational pension, which by general standards is rather generous. We civil servants don’t contribute to the occupational pension fund – it is funded via the budget, in other words the taxpayer.”
During Tuesday’s meeting, “the Minister pointed out as an example that if the occupational pension for civil servants were self-funded, it would require some 33 per cent of wages in contributions. Without pre-judging the issue ahead of the negotiations, it would be logical for all employees to make some contribution to their occupational pension. As an indication, the Minister said that a reduction to the equivalent of 20 per cent of wages as the state’s contribution would represent an annual saving of €150 million.”
“Logically, if the 20 per cent state contribution were to be agreed and occupational pensions were to remain at current levels, this would imply that employees would start making a contribution of some 13 per cent.”
