A lockdown and other measures aimed at preventing the spread of the COVID-19 Coronavirus have largely worked on Cyprus to hold down cases and deaths but the closing of businesses could be devastating to the economy.
Finance Minister Constantinos Petrides warned of a potential catastrophe, including in the health sector, saying the country was was entering “the most difficult and most dangerous (phase) because that is where our success in the third phase will be judged that will bring the recovery of the economy,” The Cyprus Mail reported.
He was speaking during an online economic summit hours before President Nicos Anastasiades was due to announce the lifting of certain restrictions designed to stop the spread of the virus.
“We are taking a step forward but if we don’t observe the rules of this second, difficult phase, then we could take two steps back. Two steps back would be catastrophic both for our health and the economy,” Petrides said.
He said the potential damage to the economy would be different than the 2013 financial crisis brought by banks going to the edge of ruin after making bad loans to Greek businesses during that country's crisis, and with big holdings in Greek bonds that were devalued 74 percent.
In 2013, he said, to cope, the government had to make substantial cuts in spending and make tough calls that shrank the banking sector and seek a 10-billion euro ($10.87 billion) international bailout and Anastasiades reneging on vows to hold bank managers accountable for the crisis.
Petrides said there were three possibilities: failing to manage, especially with tourism likely hammered, which could bring a credit downgrading; rising debt that could bring more austerity measures, or finding some ways to hold down the downfall.
“At this stage we are not sure where we will end up. We’d like to believe that with everyone’s cooperation we will achieve this scenario,” he said.
Central Bank Governor Constantinos Herodotou said there shouldn't be an overreaction and said the bank will monitor the economy. “We are vigilant, we are preparing our own scenarios in order to help in any way we can,” he said.
“Our economy’s growth depends almost entirely on the banking system and the banking system depends almost entirely on the economy,” he added, without mentioning the 2013 crisis that saw many people lose much of their savings when the government confiscated 57.5 percent of accounts over 100,000 euros ($108,737.)
“We must be careful that any measures we take today, will not become the reason for any other future crisis.” Therefore, he added, “there is a need to be prudent and for provisions to be made so that we can manage properly the sources we have at our disposal today,” he said.