EVERY day, it is said, an official from the Land and Surveys Department calls the finance minister’s office to inform him how much revenue had been collected from immovable property transactions. This is an indication of the desperate state of public finances. Every euro collected by a government department helps, and Charilaos Stavrakis is deeply aware of this. But while the finance minister is counting the cents trickling into state coffers, his boss, President Christofias is behaving as if he were running a booming economy.
It is not as if he is not aware of the fact that we have been in recession for over a year now and that the budget deficit and public debt have been on an upward path. There has been no shortage of warnings in the last 18 months, both from home and abroad, about the need to cut public expenditure, but Christofias has closed his ears to these, ignoring even his own finance minister and publicly disowning a cost cutting package the ministry had prepared, arrogantly stating that his ideology prevented him from approving anti-worker measures. In other words, remaining true to his ideology was more important than saving the state from bankruptcy.
Is the president so clueless about economics that he cannot grasp the big dangers posed to the economy by his lamentable, do-nothing policy? Even if his understanding was non-existent, he should have listened to the advice offered by a host of economists. And if he does not trust Cypriot economists and feared they had a political agenda he could have heeded the advice of the IMF officials who were here last year, or the recommendations in reports of the European Commission, or even his finance minister who has a double first in economics from Cambridge.
Two weeks ago the Governor of the Central Bank – highly respected economist who has worked for the US Federal Reserve – made yet another plea to the government warning that “the longer we take to make structural changes needed to put public finances back onto a healthy basis, the more painful for the country’s economy the inevitable corrections will be.” It was not the first time the Governor had called for action, but as on previous occasions he was completely ignored by a government committed to doing nothing. Not even the Greek economic disaster – caused by an overstaffed, overpaid and underworked public sector – could act as a wake-up call, for Christofias.
On Wednesday the European Commission placed Cyprus under the excessive deficit procedure after the government notified Brussels about its deficit of 6.1 per cent of GDP for 2009 and the rising public debt. Meanwhile, the Financial Affairs Commissioner Olli Rehn politely criticised the measures submitted by the government in April as part of its proposed stability programme. The programme aimed at reducing the deficit by increasing state revenue rather than cutting state spending, which has hit a record high this year. Rehn pointed out the stupidity of the government’s proposals. How state revenue would increase at a time of negative economic growth only Christofias could tell us.
When he disowned the finance ministry’s measures for ideological reasons, Christofias announced that he would personally negotiate with the leadership of the public servants’ union PASYDY the cuts that needed to be made in the public sector. This was two months ago, and as far as we know, there has been just one inconclusive meeting. Worse still, PASYDY revealed a week ago that the President had created some 46 new, high salary, posts in the public sector. This illustrated his commitment to streamlining the public sector, the biggest drain on state finances.
On Friday, Stavrakis presented a package of half-measures that would supposedly keep the deficit at 6.1 per cent of GDP for this year; he boasted that the measures would not affect living standards. But next year he would have to impose new taxes to keep the deficit in check, if public sector wages and pensions were not reviewed downwards. These taxes, which would be a direct result of Christofias’ fear of the public sector unions, would not only affect everyone’s living standards but delay a possible recovery.
The president’s unwillingness to take any unpopular decisions, is posing as big a threat to our economy as the all-devouring public sector. We do not know whether ideological arrogance, ignorance of economics or weakness that is to blame for his do-nothing attitude. What we do not is that the man is leading the country down the same path that Greece followed and ended up an economic disaster zone.
