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Governor warns Cyprus is at the edge of the precipice

The Governor of the Island’s Central Bank has warned that Cyprus is at the edge of the precipice and has called on the government and parliament to work together to overcome opposition from the unions to proposed austerity measures.

Central Bank Governor - Athanasios Orphanides

THE Island’s Central Bank Governor said that Cyprus needs an effective fiscal consolidation plan if it is to regain the markets’ trust.

Speaking to the local broadsheet Ο Φιλελεύθερος (Phileleftheros), Athanasios Orphanides warned that failure to do this “will trigger an exceptionally unpleasant downward spiral”. There could be painful cutbacks and steep taxes if the government delays addressing the economic problems which in turn will impact the Island’s role as an international financial hub.

He said austerity measures imposed earlier in the year, which included cutting back on student grants and child benefits and trimming public sector salaries, were “too little too late”.

The Finance Minister recently proposed further austerity measures including a two-year freeze on pay increments and a rise in VAT from 15% to 17%, but these have come up against stiff opposition from the labour unions.

Mr Orphanides said that the government and parliament have to work together to convince the unions to get on board because, as he put it, “Cyprus is at the edge of the precipice”.

Readers' comments

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  • Mike says:

    Sadly all this will hurt the people who had nothing whatever to do with the incompetent, fiscal policies we have been following for years. No one has yet mentioned the army of those on some kind of incapacity benefit who also work (when it suits them) and fuel the black economy.

    We have foolishly, over the years, fell for the belief that financial services will be our saviour and tourism is just a bonus whereas the reality is the exact reverse. We destroyed our tourism sector via shoddy product at champagne prices, destroyed our construction market by ripping people off and what have we left, as someone said – one almighty big credit card bill to fund our unearned lavish lifestyles.

    Will anyone listen to the Governor – probably, but they certainly will not hear what he is saying; then we will emulate Greece (as we always do) and follow them down the toilet.

    Funny how a short while ago we were being told our Banks are the strongest in Europe, Cyprus is unique in that it has no fiscal problems and that our debt is minuscule. The nation is living on credit cards it cannot afford to repay. We must wake up, accept what we are (a tiny economy reliant on tourism), drop the arrogant attitude (we have nothing to be arrogant about) and then live like human beings and part of the human race.

    As a Cypriot I am frugal and do my best never to be in debt but I look around me and do not see a lot of evidence to convince me we are all doing the same. A massive attitude on state reliance is evident as is the ‘not my fault’ attitude. Sorry but we are all responsible & should accept responsibility. Listen to Mr Orphanides he is probably the only one with any sense of reality, the rest are living in a dream world and lining pockets until voted out.

  • Alex Pen says:

    Well said The Voice.

    Cyprus is grinding to a halt.

    – The lack of exports in any shape or form outside financial services provides a bleak future.

    – The badly managed public sector, bordering on levels of corruption and negligence which are scandalous.

    – The entitlement culture which has become prevalent in Cyprus since the 1990s. Everyone is under the illusion they are entitled to work. The reality is you need to work hard and prove your worth in the 21st century.

    – Tax is not an issue. Any money collected would be going into a supermassive blackhole called public expenditure. The army has to be trimmed down to the most basic function, the civil servants must be shifted from this horrible 70%+.

    – Small business cannot simply be opening the same shop next to your friends successful one. There needs to be a hard rethink in the nature of the culture of commerce we are developing in our country.

    The current climate in Cyprus is akin to blackmail. You are blackmailed into joining a party if you want to live a normal life, conned into thinking that the island needs an army which spends near a billion dollars a year on wages and ammo for firing ranges for Efedrous, tricked into thinking that political ideology exists and that the Left, Right and Centre are just the same old friends, one unionist and one conservative.

    Here is my solution: bring in the technocrats, the Cypriots of worth who have positions of economic influence in various countries and institutions around the world, dissolve our ridiculously old and decrepit politicians and replace them with an interim international panel. The reforms will have to be done ruthlessly and no surnames are more important than others; if the position is redundant, you get fired. Goodbye. Position in government closed.

    Long hard times ahead guys! It turns out the economic miracle everyone was talking about, turned out to be just a massive credit card bill.

  • Richard says:

    Cyprus needs to stop being a ‘parish pump’ republic and realise it’s trading in a truly global migratory interconnected world economy where only outstanding produces real winners.

    It isn’t the 19th Century, or the 20th Century but the cusp of the most exciting century since records began.

    Spoils will belong to those who understand and embrace this.

    Those who can’t better get good at lifting heavy boxes.

  • Martyn says:

    At last, a figurehead who, rather belatedly (but ‘better late than never’) tells it ‘as it is’. But will the decision-makers listen, heed? Very probably not, reckoning that the €2.5tbn Russian loan will bridge the period leading to exploitation of undersea gas, not even proven yet, let alone ready for exploitation.

    The Cyprus economy is already in freefall, the evidence is everywhere: banks critically exposed, businesses closing down everywhere, property and construction in long-term decline, revenues falling almost everywhere – and the Government doesn’t seem able to take even the most basic austerity measures. All this whilst the President clearly has his eyes largely on the upcoming EU Presidency. But what sort of mess will he be prevailing over by the time he gets it? Many of us shudder to think!

  • Costas Apacket says:

    @The Voice – I also agree with both of your points, however what hope have we got when the Cypriot Government hasn’t the will to efficiently collect transfer taxes, which are way overdue, from over 130,000 property sales over the last 15 – 20 years.

    You see the problem isn’t just one of poor efficiency, but also of political expediency.

  • @TheVoice – I agree. But what the government seems to be lacking is what an American General once referred to as “intestinal fortitude”.

  • TheVoice says:

    Look this isn’t rocket science! Cyprus needs to do the following:

    1) Increase tax revenue by collecting tax efficiently. This means moving away from a cash based economy so records can be kept, allowing tax inspectors to do their job. Ensuring that the revenue department effectively pursues wealthy individuals who avoid paying taxes. Raising taxation levels is pointless unless you are actually collecting the revenue that is due in the first place.

    2) Reduce public expenditure by cutting unnecessary public sector jobs. Now sadly this means you’re going to put your cousin who only goes in to work once a month to collect his wage out of a job, but in the long term its better for everyone.

    I am available as a consultant to the EU or any other country with financial difficulties who need advice.


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