THE GOVERNOR of the Central Bank Athanasios Orphanides yesterday warned that failure to put public finances on a sound basis, as soon as possible, could lead to another downgrading of the economy. The delay in taking measures, highlighted by international analysts as well as the European Commission and the IMF, was one of the biggest dangers facing the economy at present, said Orphanides.
He diplomatically dismissed the government’s assurances that only €150 million was required to put public finances on track, citing the growing public debt as another big concern that had been completely ignored by the government. The public debt had risen beyond all expectations, he noted; in 2009 it ended five percentage points (€800 million) higher than forecasted. According to the Commission’s forecasts by 2012 the debt is expected to rise to 68.8 per cent of GDP which would be a 20 percentage point increase (€3.5 billion) since the end of 2008. The limit set by the Maastricht guidelines for the public debt is 60 per cent of GDP.
The Governor mentioned this to explain that the measures to reduce the budget deficit by €150 million would not put public finances in order. Much more drastic cuts had to be made by the government in order to reduce the public debt. In short, the quick-fix solution which the government talks about, but does not have the will to implement, will not put public finances on a healthy footing. Without drastically reducing the cost of the public sector (euphemistically, referred to as the ‘structural problems of the economy’ by the politicians), the budget surpluses that would help reduce the public debt would never materialise, while the cost of borrowing would keep rising.
All this talk and continual warnings would have been superfluous if we had a responsible government. But when the government is run by a president who puts his popularity ratings above the interests of the economy, everyone has to repeat the same things over and over again, in the hope that he will eventually take the necessary decisions.
However, this is looking increasingly unlikely. On Saturday President Christofias, as if to emphasise how out of touch he was, said that as long as the political parties showed a little understanding “our small country would relatively easily overcome the economic crisis”. All the warnings about the dangers the economy was facing were nonsense. “I honestly believe you are bombarded with information that is the complete opposite of reality,” he said reassuringly.
We know whose analysis about the state of the economy we should believe. As for the president, his limited understanding of economic issues and refusal to listen to the experts would suggest that he is by far the biggest danger posed to our economy
