The Cyprus Minister of Finance introduced the government’s plan to help businesses overcome the economic catastrophe triggered by COVID-19. The minister’s answer to help the plight of a shattered economy was to announce EU loan packages through the banking system. Many other countries offered, ‘grants’ to help economic recovery rather than burgeoning debts.
The Chairman of the Bank of Cyprus has warned that the country is facing a deep economic slump” but could not say how deep! Equally, the 2020 Economic Sentiment Indicator (ESI-CyERC) by the University of Cyprus’ reported a deteriorating confidence in the marketplace. Its latest published Index (CCLEI) however, also recorded one of its most negative Year-over-Year growth rates in April. Both unwelcome indicators for the island.
Now that the pandemic restrictions are relaxed the nation is hopeful things will return to some kind of normality, but with people worried about the future, consumer spending remains at a trickle and if the slump continues, additional loans can only become ‘poisoned loans’ in a debt-ridden nation where businesses are facing an uncertain future in a collapsed economy.
Loans can be a blessing for some but also a curse for others and in the absence of a vibrant economy the risk of debt default remains high. According to Trading Economics, household debt to income is expected to reach 152.53 percent by the end of 2020. The island also has the second highest non-performing loan (NPL) ratio at 34.1% compared with the EU average of just 3.1% of total loans.
Under pressure to reduce the adverse effects of the COVID-19 economic disaster, the EU has apportioned €1.7 billion euros to help Cyprus out of its lockdown predicament. If by the end of the year the economy does not show signs of improvement there can be little chance for a quick recovery.
On considering such a scenario, the Minister Of Finance has hinted that: “it may be necessary” to call in EU/Troika for another Bail-in Mnimonio. That option will send shockwaves across the nation because they are just beginning to get over the last Troika Bail-in (2013) when the government robbed people’s bank accounts to save a corrupt banking system.
Without a doubt, the island’s economy has always relied on an army of hardworking shopkeepers that employ thousands of people working in small and medium-size businesses such as restaurants, light industries, and the retail market. Based itself on a consumption economy, unwisely Cyprus has failed to encourage the development of a strong exporting economy but remained a nation dependant on imports and the fragile tourist industry.
When recession hits, this sector is the first to take the brunt of the blow with catastrophic effects! Equally, it is the first sector to turn to the government for assistance to avoid destitution, bank repossessions, evictions and homelessness!
EU financial assistance could not arrive fast enough and the government has prepared its rescue plan for parliamentary approval. The proposed plan was rejected by Parliament, demanding that it be amended to provide greater transparency and better protection to the borrowers!
But most importantly, the majority of MPs demanded that the Audit Offices of the Republic and Mr. Odysseas Michaelides (AG) himself have roles to play to ensure fairness and transparency on the disbursement of €1.7 billion EU rescue funds.
That did not go down well with President Anastasiades or his Conservative party leaders. Subsequently, they agreed to withdraw the bill rather than amend it.
Not surprising the government had Plan B up its sleeve to bypass Parliamentary approval altogether. The government would then be free to deal with the rescue package as it pleases without accountability to Parliament and certainly not be answerable to the Audit Offices.
The Auditor General has in fact been the President’s prickly thorn for years and attempts at his removal had become essential! A conspiracy has been put in motion to do just that and the reason? Mr. Odysseas Michaelides (AG) a popular man, has overwhelmingly gained the respect of the public for executing a job well done and in a transparent manner! For Cyprus, this was a revolutionary new experience in a culture that has been traditionally accustomed to cover-ups without transparency.
An independent authority protected by the Constitution, Mr. Michaelides (AG) has repeatedly resisted political pressure to compromise on his investigations and he’s considered by the people as a sentinel of the state to protect public interests. Without hesitancy he often spoke out against corruption and passed on files of wrongdoings to Costas Clerides the Attorney General of the Republic for prosecution – another pillar for the Rule of Law and soon to vacate his post!
It is for this very reason Parliament insisted that the Auditor General’s impartiality was critical to ensure transparency prevailed. Vouli took a stand not to be duped by political blackmailing again like the 2013 Bail-in fiasco. The majority of MPs could no longer accept bank reassurances or trust government promises on handling €1.7 billion EU honeypot with fairness at the taxpayers’ expense.
The decision to ignore Parliament was certainly a cunning political move to establish absolute control over policy making. But, as Lord Acton stated: “absolute power corrupts absolutely” and so the political scene in Cyprus is changing to the detriment of parliamentary democracy, transparency, and accountability.
Today however, the banks are very happy with a one billion euro loan facility handed to them on a silver platter – 80% secured by the state – but much happier that the Auditor General cannot use his Audit Offices to scrutinize their loan practices and threaten prosecution; the government on the other hand is also happy for preventing Mr. Odysseas Michaelides (AG) meddling in political policy matters to do with the €1.7 billion EU rescue package.
As for the hundreds of shopkeepers and small businesses, only time will tell if the promised EU manna from heaven will trickle their way to also make them happy.
Meanwhile, it is the banks that have been authorized to decide who actually qualifies to get a support loan and not the government or the Ministry of Finance. In this particular situation, it raises a serious question as to who actually dictates national economic policy – the banks or the elected government?
Andreas C. Chrysafis is a UK published author of five books and over 400 press articles.