IT WOULD be grossly unfair to blame the precarious state of public finances solely on the Christofias government. This has been the result of decades of mismanagement, profligacy, reckless populism and short-term thinking, based on a single consideration – the number of votes that could be secured for the re-election of whoever happened to be president. Financial prudence was an unknown concept as successive governments never thought beyond the next presidential election, when making decisions.
Nobody took the long-term view to consider the future problems that would be created by the endemic profligacy of the state. The remedy for everything was throwing more of the taxpayer’s money at problems in order to avoid the tough decisions which were always left for the next government to take. Public sector unions identified this weakness early on and kept upping their demands for pay rises and benefits, knowing that no government would ever turn them down.
But no state, like no business, can go on living beyond its means – financing its generosity through increased borrowing – indefinitely. The time will come when it will run out of funds and borrowing money ceases to be an option. This is what happened in Greece, with devastating consequences for the people, and, worryingly, Cyprus seems to be heading in the same direction, because the irresponsible profligacy of decades has finally caught up with us. The recession has brought the accumulated problems to the surface, all in need of immediate remedies.
In the last week public debate focused on the viability of the Social Insurance Fund, which the Cyprus Association of Actuaries, predicted would be paying out more than it will collect in contributions by 2020. The Fund would be able to overcome this problem if the state paid back the €7 billion it had borrowed to cover its profligacy over the years, but for this to happen healthy budget surpluses are needed. At present, the government does not even seem capable of reducing the big budget deficit forecasted for 2011, despite imminent danger of Cyprus’ credit rating being downgraded.
Meanwhile the pensions system has been described as a ticking time-bomb by both the Finance Minister and the Central Bank Governor because of the extortionate payments to public sector workers. Semi-governmental organisations are already experiencing difficulties making pension payments to staff, a problem that is certain to become more acute in the next few years. Will these wasteful organisations, run like worker owned co-ops, be bailed out by the state when they can no longer pay the princely, staff pensions and obscene retirement bonuses, undreamed of in the private sector?
We are currently facing the prospect of our two state airlines being closed down and making some 3,000 highly-paid workers redundant. While the government will do everything it can to prevent this from happening, nobody knows what the European Commission will decide after this year’s record losses for both airlines. Cyprus Airways has been a monument to mismanagement, run by political placemen without a clue about the airline industry, paying wages it could not afford and showering workers with benefits.
We will not go into the constantly rising public sector pay-roll, the root cause of all our troubles, as we have written about its negative effects on countless occasions in the past. It suffices to say that the government considers limiting its increase to three per cent for 2011 a major achievement. What hope is there when, in the worst recession to hit Cyprus and with public finances threatening an economic meltdown, this was the best the government was capable of doing? It is not even as if the state can rely on big revenues in the future. Our tourism industry is uncompetitive and in terminal decline while the construction industry has ground to a halt because of a glut in unwanted holiday homes.
President Christofias is now burdened with the responsibility of clearing the accumulated mess and saving the economy from the impending disaster. He has shown however that he does not have the political will to administer the strong medicine needed to save the patient. It does not help that the entitlement culture has become so deeply rooted.
This is why he should call a national council meeting for saving the economy. As the president cannot administer the economy-saving medicine on his own, the only remaining option is collective responsibility and collective decision-making. As all the political parties contributed to the creation of the current mess, the least they could do now is join forces, in a rare show of unity, and take the unpopular decisions needed to spare us from suffering Greece’s fate.
