Fis­cal progress is good, but what about the “real” econ­omy?


Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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