FINANCE Minister Harris Georgiades believes Ireland’s successful exit from its adjustment programme could serve as an example for Cyprus and if we continue our current course “like Ireland and Spain, we can return to normality”.
His comments came at the end of the latest troika visit, which concluded that Cyprus would see its economy contract by 7.7 per cent this year from an earlier 8.7 per cent projection.
Recession forecasts for 2014 were revised to 4.8 per cent, from 3.9 per cent however. Yet despite this pessimistic prediction for 2014, the troika has offered hope of a return to growth in 2015.
Within a day or so of this, along comes Fitch ratings agency, which expects recession to be much deeper, predicting a return to growth only in 2017, after a contraction of 5.0 per cent in 2015 and 1.5 per cent in 2016.
Georgiades responded to this with a: ‘We’ll prove them wrong”. But with due respect to the minister’s optimism, saying something doesn’t necessarily make it so. As much as the ratings agencies are generally the merchants of doom and gloom, the 2015 troika forecasts appear to be overly optimistic.
If all goes according to plan Cyprus is due to exit the three year programme some time in 2016. Does the government really expect to return to growth a year before that?
The minster suggests following the example of Ireland, which exits a three-year bailout next month. Yet latest EU forecasts predict Irish growth in 2014 at just 1.7 per cent.
The Commission said Ireland’s economy would also remain largely flat this year, growing by just 0.3 per cent. Unemployment there is still 15 per cent. There are jobs but mainly in IT. The housing market is still depressed and people have seen their standard of living taken ten years back, and they are still facing the harshest of austerity.
The Irish government has talked disingenuously about how old-age pensions – averaging around €800 a month – have not been touched throughout this crisis.
Yet they have cut other pensioners’ benefits such as partially-free electricity and phone allowances. They’ve introduced prescription charges for the elderly plus an indiscriminate property tax, the mandatory installation of water meters to increase revenues, and the introduction of a new type of ‘broadcast licence’ for every home without exception, even if there is no TV. Pensions may not have been touched but these ‘extras’ have left OAPs with €50 less a month. To be fair, Ireland has also imposed substantial pay cuts in the public service, unlike Cyprus.
According to the troika, Cyprus has done well in implementing its programme so far and people are not marching in the streets yet, despite the fact that many are suffering real hardship.
Saving millions here, initially at least, has probably not proved too difficult because let’s face it, there was a lot of fat to trim, and still is. But what happens when the government runs out of fat to trim over the next three years?
We are only at the start of this process and already the public is paying a special contribution from wages, arbitrary and gigantic pay cuts in the private sector, the loss of 13th salaries, the hike in VAT and other government fees, the new property tax, the hospital charges. At the same time revenue collection has not increased substantially.
Inevitably more money will have to be squeezed from the public further down the line. Ireland is still doing it despite being at the end of its programme and despite the warm glow of GDP growth figures on troika documents. It will be years yet before most Irish people can recoup what they have lost in terms of wages and living standards. Pensioners in particular don’t have that kind of time and their current standard of living is a poor return for paying into the system for 40 years.
So not only does it seem improbable that Cyprus will return to growth in 2015, but even if it does this may not mean, in the words of the finance minister, ‘a return to normality’.
