Paying the price for irrational policies of the past

By Elias Hazou
Recession-hit Cypriots are paying the price for the wasteful spending of past governments but also for a credit bubble fostered by the banks that inevitably had to burst, finance minister Harris Georgiades said yesterday.
“Budget cuts and austerity are not a political choice the government has made, rather they are the inevitable price we are paying today due to the irrational policies of the past,” Georgiades said, addressing the 4th Limassol Economic Forum that brought together policymakers, people from government and business and economic analysts.
This year’s forum dealt with the continuing austerity in Europe and the ongoing debate of how to return to growth.
In his speech, Georgiades said the poor economic state of many EU countries must be blamed on “loose fiscal policies” implemented in the past, rather than on current austerity policies.
Governments spent money which they did not have, he said, expecting future governments to foot the bill.
In the case of Cyprus, Georgiades noted that the public-sector payroll and pensions were responsible for ever-increasing government spending. State expenditures increased faster than the real economy.
The civil service in Cyprus is the most expensive in Europe, he added.
Spending on welfare benefits was always going up, said Georgiades, even when unemployment stood at normal levels. And spending with abandon continued even as the clouds of the global financial crisis began gathering.
The unsound expansion of credit during the past decade is the other key reason behind the Cypriot economy’s downfall, the minister pointed out.
The banking sector, he said, provided financing not so much for real investments that would boost production and growth, but for consumption and to the housing market. Loans were given out based on guarantees and not on thorough business plans ensuring repayment.
Georgiades said the current administration is committed to putting public finances in order, which necessarily included cutbacks in spending.
But he pledged that Cypriots would not be saddled with new taxes.
The current administration was also determined to press ahead with structural reform (civil service, public healthcare, privatisation of state-owned enterprises).
“Within the next five years we must do all the things we should have done but delayed over the last 10 to 15 years,” Georgiades said.
The forum featured, among others: Nasser Saidi‚ former finance minister of Lebanon and currently employed with the International Monetary Fund; Guillermo Nielsen‚ former finance minister of Argentina; Jose Suarez-Lledo, director at Moody’s Analytics; and Guntram B. Wolff‚ director of the Bruegel think tank.

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.