With Austerity Light on Taxes, Cyprus Sees Economy Rebound
NICOSIA, Cyprus – Less than two years ago, amid Cyprus’ worst economic crisis in decades, a charity shop run by the Orthodox Church in the heart of medieval Nicosia was awash with jobless people looking for free food.
Now, demand has dropped off to the point where Church authorities are considering shutting it down. At last check, some 120 families were using the shop, a far cry from 2,500 in July, 2014, said its manager Panayiotis Panayiotou.
“The shop has run its course,” he said. “The need for it is no longer that great.”
After emerging from a three-year, multi-billion euro rescue program, Cyprus boasts one of the highest economic growth rates among the 19 eurozone countries – an annual rate of 2.7 percent in the first quarter.
Finance Minister Harris Georgiades says Cyprus turned its economy around by aggressively slashing costs but also by avoiding piling on new taxes that would weigh ordinary folks down and put a serious damper on growth.
“We didn’t raise taxes that would burden an already strained economy,” he told The Associated Press in an interview. “We found spending cuts that weren’t detrimental to economic activity.”
Cyprus was on the brink of bankruptcy in March, 2013, after a banking crisis overwhelmed state coffers, which were already strained by years of huge budget deficits and government overspending on the massive public sector.
Cyprus’ 10 billion euro (now $11.2 billion) rescue deal from its European Union partners and the International Monetary Fund came with the kinds of strings attached that sent shockwaves across the 28-member bloc and beyond. Unsecured deposits in the country’s largest lender were seized to buttress a teetering banking sector, while the second largest lender was forced to shut its doors with savers seeing their money evaporating except for a protected 100,000 euros.
The shock was immense: to prevent a run on banks, Cypriot authorities immediately imposed controls on money transfers that were only fully lifted a couple of years later, after the banking sector was thoroughly restructured.
“This has enabled the banking sector to heal to a large extent, to regain the trust and confidence of depositors and investors,” said Georgiades.
That’s not to say that all’s well. Nearly half of all loans in Cyprus are still classified as soured and authorities are still struggling with high unemployment of around 12 percent. That’s down from its peak of around 16 percent a year ago but a long way off the 4 percent it enjoyed a few years ago.
“Exiting the crisis program, this second chance which we have essentially gained, does not signal a termination of the efforts,” said Georgiades. “On the contrary, we shall maintain and enhance the reform momentum and strictly maintain fiscal discipline.”
Critics have accused the government of working its fiscal gymnastics on the backs of the poor – essentially chopping salaries for public sector workers.
Pambis Kyritsis, head of the left-wing PEO trade union, said the government’s “neo-liberal” policies coupled with the creditors’ harsh terms have widened the chasm between the have and have-nots to huge proportions.
“What we see now is this bill is being paid by the workers and the poor people,” Kyritsis said in an interview with the AP. “(Under) this philosophy, it’s reasonable for workers to lose their income and their rights, but profits should stay stable or getting better.”
Georgiades turned Kyritsis argument around to reinforce his point that there shouldn’t be any let-up in the government’s reform program and fiscal discipline.
“We have been in a recession since 2009 and a year of growth is not enough to do away with all the consequences that a long, protracted crisis has left behind,” he said.
The Associated Press