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Tuesday 14th July 2020
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Be honest and get on with it

Celtic tiger
IF CYPRUS is going to get out of the current economic crisis then it needs to be honest about the scale of the problem and simply “get on with it”, said Irish minister Lucinda Creighton whose country has received an €85 billion bailout.

The Irish Minister of State for European Affairs was in Cyprus this week to attend the informal ministers meeting on the EU’s long-term budget.

The Sunday Mail caught up with the young, straight-talking and on-the-ball Creighton in between negotiations and lunch to hear her views on how Ireland went from poverty to boom to bust (and bailout), and now slowly back to self-sufficiency.

Asked what caused the crisis in Ireland, she said: “In a nutshell, the property bubble fuelled by an unregulated, irresponsible banking sector. Obviously government policy contributed to that but the nub of the issue is we had an enormous property crash which brought the whole economy crashing down with it.”

Between 1995 and 2007, Ireland experienced extraordinary economic growth, making the ‘Celtic Tiger’ the poster child of the EU. In the summer of 2008, it officially entered into recession. In 2010, Ireland received €85 billion in the form of a bailout loan from the troika (European Central Bank, International Monetary Fund and European Commission) and through bilateral loans from Britain, Sweden and Denmark.

Two years later, unemployment is near 15 per cent but the economic indicators are starting to look positive. More importantly, Ireland has slowly regained the trust of the world and markets, even raising cash in July by tapping into short-term bond options. The aim is to get out of the bailout mechanism within 2013.

“The economy is basically growing once again. We’ve effectively emerged from recession. The economy grew by over 1.0 per cent last year, so by and large it’s a good news story, though that’s not in any way to take away from the huge sacrifices that the Irish people have had to make,” said Creighton.

The Irish experience has plenty that Cyprus can learn from. Both countries are islands with relatively small populations. Both have a historic enmity towards former colonial master Britain, though the British bailout loan to Ireland and Queen Elizabeth’s first-ever visit to the Irish Republic last year did much to bury that hostility.

Both experienced a period of enviable economic growth fuelled mainly by a property bubble followed by recession and soaring unemployment. Both applied for a bailout when the money dried up after international markets closed the tap on reasonable lending rates.

The similarities end there.

Once coming to terms with the crisis, Ireland took swift and hard measures to beat it, resulting in today’s more positive outlook. “It took a bit of time for the government to really come to terms with the scale of the crisis,” said Creighton.

“The first budget of 2009 ignored the crisis and ignored the need for fiscal consolidation but as the year progressed it became apparent there was a huge gaping hole in the public finances and so there was an emergency budget later in 2009. So, we’ve had three and a half years now of consolidation,” said the minister, predicting another three years of belt-tightening.

Ireland implemented a whole range of measures to curb the “huge amount of excessive spending in the public sector”.

“Our civil service grew at a rate of knots during the Celtic Tiger period. The government kept spending and spending, increasing bureaucracy, increasing quangos (quasi-autonomous non-governmental organisation). So, a lot of that was very easy to cut to be honest, because there was a lot of low-hanging fruit, a lot of fat in the system that needed to be trimmed,” she said.

The Irish minister said public sector salaries were a starting point for the fruit-cutters, noting that reductions in spending were implemented right across all public services.

“Nothing was excluded really apart perhaps from our social welfare payments which by and large still have been protected.”

Public servants salaries saw an average cut of 14 per cent while a voluntary redundancy scheme introduced last year has made way for 26,000 job cuts.

“So far, we’ve had no forced redundancies in the public sector and hopefully that will be maintained,” she said.

The push for major reforms and efficiencies in the public sector (belt-tightening, early retirements, salary cuts) was decided in an agreement between the government and social partners in 2010.

That deal has been honoured in full by the government but will be up for review in 2013, noted Creighton.

“That’s how the measures began really, but as you move from one budget to another the decisions get tougher, as there’s less and less of the easy options in terms of cuts to be made,” she said.

According to Creighton, lower and middle-income workers have been hit the hardest by the crisis.

“They’re the people who have really paid the price of the crisis. In the private sector particularly, they lost their jobs. Huge numbers of people lost their main source of income, or if they didn’t lose their jobs, they took significant pay cuts, up to 35-40 per cent in certain sectors.

“Of course that then has a major impact on mortgage repayments. We have a major problem now with mortgage arrears in Ireland where families just can’t meet their mortgage payments. That’s one of the biggest challenges facing the government.”

Acknowledging that Ireland is still living in very difficult circumstances, Creighton argued that the measures have clearly paid off, providing more rationality to spending while restoring Ireland’s credibility.

“We were living beyond our means. Towards the end of the Celtic Tiger era, one in every four euros received by the exchequer was coming from the property sector so it was a complete fantasy.

When that collapsed, we found that in effect we were spending far more than we could afford. So, we’ve had to cut our cloth, and I think that that has been very effective, and worked very well,” she said, adding that in general the Irish public has supported the government’s measures.

“The other thing is that the measures have very much restored Ireland’s credibility on the international stage. Nobody’s questioning whether Ireland’s going to meet its targets under the troika programme or whether Ireland is a safe place to invest.

“We’ve stabilised our banking sector and economy. We’re not haemorrhaging jobs any longer. Our unemployment rate is still unacceptably high but the attrition rate has really stopped,” she said.

At the same time though, aren’t the future generations laden with an insurmountable public debt?

“Absolutely, the debt levels are unacceptable. It’s very difficult for a country to grow when it’s saddled with debt in excess of 120 per cent of GDP. That’s why we’re negotiating at an EU level to sever the link between sovereign debt and banking debt… That’s our goal. And for Ireland to really rebound, that’s going to be hugely important.”

Creighton’s account of Ireland’s response to the troika’s arrival differs sharply with Cyprus’ own experience of the trio of international money lenders, due back on the island this month for further negotiations.

“Initially, when the troika arrived in Ireland we had been in a very tragic political meltdown for about 18 months. We had a government that had lost all authority, all confidence, and so when the troika arrived in Dublin, it was almost like a sense of relief amongst the public. And people were delighted that someone was coming to try to sort out the mess that we were in,” she said.

“Of course that very quickly turned into resentment and so on. Still in Ireland, by and large, the troika are not popular, but they are not despised. People understand we need the money and we need the cooperation to get out of the mess we’re in.”

Perhaps music to some ears in Cyprus, the European affairs minister said Ireland found the troika to be “extremely flexible and extremely willing to assist countries”.

She explained of the bailout mechanism: “It’s not a punishment process, it’s trying to make sure that countries like Ireland and Cyprus can grow their economies, be competitive and emerge from recession.”

Creighton pointed to the fact that Ireland successfully defended its position on its low corporate tax rate, insisting it was a fundamental part of Ireland’s investment strategy, industrial policy and export strategy. “And we have been proven right because Ireland has emerged from recession,” she said.

It couldn’t have happened at a better time.

The positive indicators come at a time when the public is starting to get weary of cutbacks and fiscal consolidation.

“Understandably, people want to see light at the end of the tunnel,” said the minister, pointing to Ireland’s recent successful bond options.

“So we are on the path to emerging from our bailout programme, to being able to borrow from the markets again, to fund ourselves and stand on our own two feet in an economic sense. I think that’s very important for the Irish people.

Asked why Ireland did not see the kind of social unrest witnessed on the streets of Athens, Creighton said there was “real political consensus across the board” for fiscal consolidation.

In terms of the public’s response, she referred to an Irish sense of realism and pragmatism.

“People knew, and we all felt that what was happening in Ireland was not sustainable, that the last few years of the Celtic Tiger was a little bit of a surreal experience. There was a bit of a coming back down to earth.

“So people just said OK, let’s get on with it. Let’s pick ourselves up, let’s move forward. We’ve been through worse times. Ireland after we gained independence was a destitute, impoverished place, the poorest country in Europe. We’ve been there before. This is nothing like that. We can just move forward. And we have support from our European institutions, support from our European partners, we just need to get on with it.”

What can Cyprus learn from Ireland?

“To get on with it, to be resolute and to be honest about the scale of the crisis.”

Creighton said Ireland made the mistake of not insisting on full transparency from the banks and learning the full scale of the banking crisis from the start.

Instead of dealing with the problem in the first round, the banks ended up needing a number of bailouts.

“I think that’s a very important lesson: that every other country, Spain, Cyprus, should try to avoid the mistake we made,” she said.


  1. A lot of sense has at last been brought forward and put ‘into the laps’ of the Cyprus Government’, will they understand and realise that they themselves are on the edge of a very large crevice with no safety net.

    They must ‘grasp the nettle’ as Ireland did and bare the consequences of the past decisions made by the hierarchy for the population and economy of this wonderful piece of God’s earth.

    Unfortunately as it has been said before most of the Cypriot Government members should be looking towards the ‘pastures of later life’, while letting progressive, younger and fresher blood with new ideas, into the forefront of the problems that stand before us.

    This is the only way that up to date issues can be understood and solved for Cyprus, not by accepting the way things are going, but by building a future for the generations to come.

    This can only be done by a joint effort of refreshing and experienced new Government members that are accepted into the fold to tackle this battle and get the job done.

  2. Janner.

    The President can never be “thrown out”, as you put it, as the Cypriot Constitution doesn’t allow it. Only in the extreme case that he’s deemed to be insane can that happen (Many would argue that that point has been reached but you know what I mean).

    Unlike the British model of parliamentary democracy, the President is elected for a 5 year term and nothing and nobody can remove him. He also enjoys legal immunity, something which has been demonstrated and proved as a result of the Mari catastrophe.
    I’ve written about this system on numerous occasions elsewhere and have likened it to an elected dictatorship. As a result, the Cypriot parliament has more of a peripheral role and in the case of foreign affairs, for example, the President can do whatever he pleases without consulting it.

    There are other more detailed elements to this but I hope the bare bones above are of some use.

  3. The bottom line has to be, if Cyprus cannot pay it’s bills it will go bust.

    I would have thought that if the Cypriot parliament believed the situation was so dire that they were unable to pay their bills, they would throw Christofias out and collapse the government.

    The fact that this hasn’t happened would make me think that the truth is not being told. The ministers must be confident that Cyprus can pay it’s bills or they are just thick, or they do not care!

  4. Unfortunately, as we all know, ‘urgency’, ‘cogency’ and ‘integrity’ aren’t currently featured in the present Cyprus government’s vocabulary.

  5. The Irish Minister of State has spelt out some home truths regarding her country’s woes and what was necessary to rectify the parlous state of its finances.

    This has been achieved via a mixture of sound measures with an essential ingredient: discipline. Transferring this obligatory attribute to Cyprus will be another matter altogether.

    In addition, there are factors which are unique to the island. Although there has been a similar property bubble, there’s the title deed scandal which has deprived rightful ownership to tens of thousands of unsuspecting real estate purchasers and laden the banks with billions of euros of probable toxic debt. (This has been the banks’ own making in concert with certain developers and lawyers. No sympathy due there but it’s the Cypriot taxpayer who’ll have to pay for their greed and wrongdoing). Furthermore, the government is in denial as to the state of the economy and is doing relatively little to reduce the bloated public sector. There also exists an inherent blurring of boundaries within the cosy relationships involving government, parliament, banks, developers and the legal profession. This was illustrated recently by the conflict of issue case regarding the outgoing Chairman of the Bank of Cyprus and leading light of Aristo developers, Mr. Aristodemou, and the huge loan he obtained from his own bank.

    What’s required is a total cleaning out of all the ‘artful ways’, the instigation of a new mindset (especially in respect of Cypriot politicians and oligarchs) and the application of the law instead of the current lip service paid to it since the birth of the Republic.

    Easier said than done – and I’ll believe it when I see it.

  6. Your headline “BE HONEST AND GET ON WITH IT” is not possible with this government because they do not understand the first two words and they have never been able to “get on with it” unless there was something in it for themselves.

  7. Well Done Cyprus Mail for a) getting this Interview b) printing a very full and extremely insightful approach to Nations, small nations as well as larger, getting into serious economic difficulties – and then laying down and following plans to deal with, eradicate them. As a banker, a fairly old-fashioned banker – with liquidity ratios and lending/security/client commitment quality ingrained from ‘early days’ (’60s before even Credit Cards were launched in the UK!) I watched in sheer amazement and eventually ‘awe’ at many of the things, business, banking, economic, regulatory !) that we’re going on. Experience with 3 well known banks, one Irish – and all three now in the ‘basket cases’ categories, showed how old principles got discarded and sexy new ‘financial products’ started to prevail.

    Now it’s interesting to see how different banks – and countries! – react so differently to ‘problem identification’ and, then, problem resolution. I can see how ‘Club Med’ cultures and temperaments differ so greatly from those in ‘Northern European’ zones, countries. Well Done Ireland for tackling the HUGE problems that global and national lax banking and regulatory practices had helped create, and even more so now for knuckling down and addressing and sorting the ramifications thereof.

    When will Cyprus seriously address it’s own dire situation and set about sorting them? Taking yet more loans from Russia, China even, will simply add to huge existing national debts and probably delay the addressing of many of the fundamentals. It’s seems the motto ‘something (good) always turns up’ is ingrained here, the long-term Manyana approach applies. The gas/oil finds had better be as large as ‘hoped for’ and the management of these at least good enough to add real long-term prosperity to this lovely country. It will be interesting indeed to watch Cyprus’ ‘journey back to prosperity.’ from its position right now at the ‘edge of the abyss’.

  8. What can Cyprus learn from Ireland?

    “To get on with it, to be resolute and to be honest about the scale of the crisis.”

    Excuse me, Cyprus (government), get on with it and honest – surely these are contradictions and consequently will never happen.

    We are fed a daily barrage of spin, terminological inexactitudes (I didn’t want to be rude and say lies) and misinformation to the extent that much of the population is totally apathetic toward politicians and the remainder who might still retain the capacity for thought and analysis consider that if a politicians lips are moving then they must be lying so what chance have we got.

    A lesson well advised is “better to remain silent and be considered a fool rather than speaking thereby removing all doubt”. Sadly of course it is the Party political line that results in such views as individually the ministers and deputies themselves are able, intelligent and capable beings generally and independent of the Party.

    Transparency is the key as Cypriots have transcended far greater difficulties over time and can do so again if only they were told the truth.

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