Fiscal progress is good, but what about the “real” economy?
E DII TO RII A L
The rating agencies, the Troika of the international lenders and the technocrats at the Finance Ministry are once again patting each other on the back, with words of “good job” blurted out every now and then as Cyprus seems to show “fiscal stability”.
In actual fact, what they all want is the justification to upgrade the sovereign ratings from the ‘junk’ level to one of ‘investment grade’ simply to allow Cyprus to proceed with its mega-bond issue any day now, estimated at 1 to 1.5 bln euros. Naturally, these bonds will be grabbed by incumbent bondholders who have seen yields on their paper go sky high, while the European Central Bank will show its gentlemanly face by buying up some of these bonds as part of its quantitative easing programme.
So far, so good. And it’s about time that Cyprus’ fiscal finances were back on track, undisturbed by exorbitant public sector wages and runaway spending budgets. This good housekeeping is something that should have happened a long while back and could have prevented the economic meltdown in 2012-2013, driven mainly by the corrupt few at the heads of banks and the politicians who supported them. But the rating upgrades, still two to five notches away from exiting ‘junk’ mode, will do nothing to help the real economy, where the SMEs in the private sector used to drive growth that has now come to a standstill with unemployment stubbornly at the 15-16% range.
While other euro-periphery economies are returning to somewhat normalcy, Cyprus has fallen too far behind, possibly punished by lenders and eurocrats for being too friendly with Russia and for offering tax haven benefits, far below levels of other rivals. The banks are still struggling to cope with finance, as NPLs seem to be rising, instead of falling, no thanks to the incompetent members of parliament who dragged on too long with the insolvencies and property foreclosures bills. As a result, recoveries are way behind and SMEs are unable to secure any sort of micro or major funding to keep their businesses afloat.
What MPs, who do not deserve to get re-elected next May, do not realise, nor the Minister of Finance and his court of advisors, is that if the private sector does not recover, neither will their tax-paying capability, hence, state coffers will be depleted and then any “fiscal stability” will simply go out the window. Evidence of this trend was the Labour Minister rightly calling for those (including many SMEs) who cannot afford to pay their social insurance bills, to be allowed to pay with installments. Rating agencies should not hasten to provide upgrades, relying purely on fiscal fundamentals, otherwise their already-fragile reputations will be blemished even further.