FOR those who have been following Greek politics and finances, the current impasse with the government locked in a fight to the death for the country’s survival came as no surprise. When we see similar, even at times exactly the same, symptoms occurring here in Cyprus, it is cause for concern.
A recent warning by Manthos Mavrommatis, president of the Cyprus Chamber of Commerce and Industries, that the rate of inflation in Cyprus is out of control – in fact, three times higher than the eurozone average – was chilling. Add to that, whereas elsewhere prices go down during a recession, in Cyprus they are rising sharply. Further add rising unemployment, and it comes as no surprise that rumblings have already been coming from Moody’s and other rating agencies that they are reconsidering Cyprus’ favourable ratings.
This sounds ominous. After George Papandreou, on winning the Greek election, announced that his predecessor had under-reported the deficit on the current account by more than half, and that state liabilities amounted to a whopping 120 per cent of Gross National Product, the international ratings agencies downgraded Greece’s credit rating. It had devastating consequences for the cost of future borrowing by Greece. Nobody wants the same to happen to this island.
The denials a mere ten months ago by Finance Minister Charilaos Stavrakis that Cyprus was facing an economic downturn were therefore worrying. The economy will soon be entering its second year of recession. Such dissimulation is dangerous. Cyprus has thus far reported accurately and its financial figures are accepted throughout the eurozone. This clean record is a definite plus and should be kept that way.
Cyprus has now joined most eurozone members (including the big ones, Germany, France and Great Britain) in exceeding the agreed three per cent cap on deficit. The figure for Cyprus is six per cent – and rising. Although the scale of the Greek problem has lately been equalled by a deficit of 13 per cent reported by Britain, it is different when that is the result of what a German analyst, Dr Rainer Zitlemann, baldly called Greece’s ‘scheming and conniving to meet the criteria for accession’ (to the eurozone, and earlier to the European Union).
All along, Greece had been happy to accept billions of euros lavished on it through EU largesse without facing up to the obligations membership implied. When 10,000 illegal rubbish dumps in Greek rivers had to be cleared, the EU provided the funds. After five years, the EU withdrew its funding, as no action had been taken to do the job. The same thing happened when the EU provided funds to reduce the air pollution caused by lignite coal power stations in northern Greece. Nothing was done and the funds, and fines, were paid rather than the government face up to powerful lobbies and risk losing votes.
Cyprus has also benefited mightily from an infusion of EU funds since its accession to the Union in 2004. Beautiful new roads, assistance with the preservation of sites of antiquity and many other projects bear the EU sign. These benefits, however, also carry responsibilities. In this respect, Cyprus’ response has been inadequate.
European demands for Cyprus to clean up the environment are largely ignored, as it demands that wildlife, particularly migrating birds, be better protected. The state coffers have recently been burdened with a large EU fine for the EAC’s – and the government’s – failure to clean up air pollution caused by the production of electricity. And what is the result? The consumer has to bear the burden, instead of the government doing the only right thing, namely taking the necessary steps to clean up the air we all breathe.
Tax evasion has been a major factor in the development of the Greek crisis. Greece is now for the first time actively encouraging the man on the street to lend the government a hand in exposing tax evasion by making the rebate on individual income tax dependent on the submission of receipts for goods or services purchased up to a certain amount. If you cannot show enough purchase slips, there is no rebate and you have to pay the full amount of tax. This forces businesses that are now for the first time compelled to issue receipts, to pay the Value Added Tax due – something that was not done in the past.
Tax evasion also seems to be rampant in Cyprus. If the consumer does not insist on getting a receipt, one is mostly not forthcoming – clearly a way of evading the taxes due. This has to stop forthwith.
In Greece, the ultimate career aim of young Greeks is a job in the civil service, and no wonder! These privileged officials, many of them ‘recruited’ through nepotism and graft, receive not only a 13th (full) but also a 14th (half) salary cheque at Easter. They retire years earlier than their EU counterparts and, wait for it, make no contribution to their generous pension funds! The Cyprus Civil Service, the numbers of which have doubled in the past few years, is also overpaid, enjoying privileges beyond the imagination of other EU Civil Services – except Greece, of course.
When the EU provided funding a few years ago to assist Greece, the only country in Europe without a land register, to set one up, no action was taken and in the end the funds had to be returned. The effect of this inaction on the expatriate housing market was negative – understandably so, as it meant that owners had no assurance of the perimeters of their property, especially those who spent long periods abroad. Subsequently, the individual Greek homeowner has had to foot the bill and fund such a register which was set up in 2008.
The disastrous and wholly unsolved debacle about title deeds is costing Cyprus the virtual demise of her lucrative construction industry. Just look at the empty new shops, villas, apartment blocks, and from there to the numbers queuing up for unemployment benefits, and it is clear that the oversupply of built-up space is massive. Nothing has come of promises to speed up the issuance of title deeds. The Finance Minister’s efforts to raise revenue for the near bankrupt state coffers by revaluation of outdated property values – which will bring higher taxation in its wake – seem also to have been lobbied to a checkmate.
There are just too many similarities with Greece not to set alarm bells ringing. The Greek government has at long last announced unpopular but necessary measures to avoid total collapse of its economy. But is the Cyprus government ready to face the consequences of its precarious financial situation? It does not seem so – every time it announces measures to address a problem, the lobbies swing into action and the effort is abandoned or watered down.
Wake up, Cyprus! The short-term pain of corrective financial measures is preferable to international disgrace and financial and economic collapse. Unless you also want to become the laughing stock of the world as the degrading new international joke, equating ‘Greek statistics’ with dishonesty, so painfully illustrates.
