By Michalis Zaouras on December 06, 2010

Eric Cantona’s “Economic Revolution”

Tomorrow is going to be the day that Eric Cantona, ex Manchester United superstar, has declared as back-run revolution. His idea is simple and ingenious, use economics tools to influence decision making. Actually someone might argue that any kind of protest can be thought as having an economic effect. For example, strikes cost both on working hours and if there is going to be blockage a network disruption. However strikes and protests might last for weeks or even months and at the end the willingness to work of workers, in order to provide food for their family (this is also a Short run effect), might be stronger than any long run aim that a strike or protest might have. On the other hand I wonder how many days can a financial system cope with a run on its deposits, probably not much given that banks sustain only a limited amount of cash in their accounts.

Apparently, banks representatives worry with this development. BNP Paribas call the action as “ill-founded”. Political leaders; France president, budget and finance minister have all reacted against the action by either downgrading its importance or personally attacking Eric Cantona.

The most important problem, though, is whether people that will follow Cantona’s suggestion have the power to outrun bank’s deposit, probably not. However if a movement develops and the number of people participating day after day soars, in other words if network dynamics play their part, then it might have a serious effect. Another problem is whether people are willing to destroy their countries financial system, in other words whether the threat is credible. To conclude I believe that Cantona’s suggestion adds a bargaining tool to the demonstrators and we are going to find out very soon if it is going to be effective.

By Alexander Apostolides on November 30, 2010

DNA, Dog Poop and Limassol

Recently the American radio show "this American life" has mentioned that Limassol municipality is considering using the services of an American DNA company to create a biometric database of dogs in the city, and use it to find out who are the errant pet owners who refuse to pick up after their pets.

This service is up-and running in the US and it is called "Poo-prints". It uses the type of technology that is used to solve serious crimes such as homicide, made possible by the recent determination of the Dog DNA genome. The idea is that dogs are to be led one by one and in isolation to an office (in order for them not to lick each other and thus contaminate the DNA sample) to be swapped and their DNA information stored. Once poo is found in public places (i.e. filling the beautiful park by the old harbour)then the offending article will undergo a chemical treatment by a city worker before shipped for analysis - if it matches the database the owner will get an automatic fine as the error is as small as when DNA of a (human) culprit is found on a murder weapon.

Lets ignore the fact for the moment that this technology is perhaps more advanced that what the police is using for quite serious crimes. It is actually an quite interesting alternative to ways other cities have tried to tackle the issue, such as place cameras in all public places (expensive and invasive to privacy) or have people videotape errant dog owners (creating public tension). The cost of swapping DNA is not much higher than $30, and all dogs in Cyprus already need to get the European identifier chip which costs a lot more than that (and which could be replaced by the DNA identifier).

If we ignore the errant silliness of DNA testing dog faeces, its is actually a good idea and I am all for it. It is innovative and if successful it can promote companies innovating new products that can use Cyprus' advantage of a healthy stock of geneticists who work for next-to-nothing wages at the Cyprus Genetics institute.

In addition the DNA testing, once successful in mapping the population (i.e. once it eliminated the issue of communal dog ownership prevalent in the Mediterranean countries), is proven to be effective, since the owners accept the results. The theory of rational expectations in economics argues that once you can not escape the punishment you will ensure you pick up after your dog since the fine is automatic and unavoidable. Thus the culprits self-monitor themselves - picking your dog's steaming pile becomes more attractive if you know that it will cost 100 euro if you do not. I imagine well to do women explaining the process of picking up ones dog waste to confused Vietnamese girls...

Of course theory and practise diverge - this scheme can only work if all the dogs of Cyprus are included, and many will find the fact that communal dogs will need to be given an owner (who will pick up their fines) or be destroyed as offensive, and their concerns are valid. But the issue of dog waste is a serious problem in parks and public ways in Cyprus, which local governments can not solve without the active participation of dog owners.

By Alexander Apostolides on November 24, 2010

Cheating "a la Greek": Illegal government slaughterhouse

Phileleutheros reported yesterday (23/11/2010)that the government had given a loan of 500,000 euro to the government slaughterhouse through the union of municipalities, effectively breaking EU rules about government funding to companies. The issue is serious since the government is committed in paper not to aid the government slaughterhouse without the EU commission's approval, and now a request for the government to become the guarantor of a loan given to the slaughterhouse by the Bank of Cyprus is in jeopardy. A fine or a suspension of EU payments could be in order since there was a clear attempt to undermine the basic principles of the EU - that it is illegal to sponsor national companies.

Although the amount is relatively small, this once again highlights several issues that are limiting our economy's potential. The slaughterhouse is a monopoly so by definition it is capable of rising prices to the point that it makes a profit. Yet the fact that it has been a government monopoly for so long leads to extremely high wage costs. Overtime payments and over staffing resulted to the slaughterhouse not being profitable at ANY price; its arrears of 30.6 million euros just for the first 9 months of 2010 is set to rival the urgent 35 million loan to the now defunct Eurocypria.

The approach of all governments towards government sponsored companies was not to solve their problems but give them enough money to limp on. The 500,000 euro loan was not going to save the slaughterhouse, but it just pushed the issue 6 months down the line; do that enough times until hopefully another government has to deal with the issue and you are clear of any negative repercussions. This is not new - this has been the state's approach towards other government sponsored companies for decades, including Eurocypria and Cyprus Airways.

What we have failed to understand is that now the economic crisis, combined with the EU rules, have led to the futility of this practise. The hidden 500,000 euro loan can result to fines against Cyprus running to the millions, while the huge debts of these government companies are a damaging drain at a time when the Cyprus government is been warned by all that it should reduce its budget deficit. The issue facing all these government sponsored companies and the government sector as a whole is the relatively high wages and inefficient practises when compared to the private sector, and unless something is done fast about this issue, more government sponsored companies will be in trouble. The time of passing the buck is over; only rapid action will save us from perhaps having to slaughter our own animals for easter souvla.

By Alexander Apostolides on November 17, 2010

The slide is on: Down Down Down...

I was interviewed on the 22nd of October about the potential repercussions of a downgrading of the Cypriot Economy by credit rating agencies. Back then I argued that the downgrading could be avoided if urgent action is brought to bear by the government to resolve the spiralling budget deficit. I also argued that any downgrade would not be dramatic, as most agencies would wait to see if the new 2011 budget introduces radical steps to redress the balance between government spending and expenditure before launching a more radical reduction to our credit score.

However, the argument went unheeded and we have been downgraded. Some investment assets which are required by law in the United States to only hold top rate bonds will sell some of our assets, but the immediate repercussions are much more subtle as we make switch in investors' minds from one of the "safe" states of Europe to one of the "worry" states of the EU.

This change affects international business based in Cyprus. The investment report of Cypriot banks published just last week by Moody's argues that the negative prospects of the economy are clouding the banks ability to preform well, as the majority of their exposure is in Greece and Cyprus. This was surprising to me since our banking sector has weathered the financial crisis surprisingly well, and one is loathe to think that the worries about the government's financial position is hampering the efforts of the Cypriot banking sector to secure better credit abroad.

One can not but worry that a self fulfilling prophesy has started to affect us: If we are seen as a potential future "Greece" and "Ireland" of Europe, people will start to withhold investments or demand a higher interest for loans to the Cypriot government and Cypriot companies, in effect forcing Cyprus in an ever darkening future.

The response to the government was to announce measures that are frankly not radical enough to convince us of their commitment to reduce the government wage bill, let alone convincing any credit rating agency not to further downgrade the republic. The efficiency drive and wage reduction promised are so timid that they are not enough to reduce the government wage bill, and as a result the government will once again starve the economy of much needed investment in order to try and keep the civil servants satisfied but also contain the increase of the budget deficit. We all know what needs to be done in terms of efficiency and wage cuts in government, but we seem to prefer to slide towards a future that looks increasingly similar to Greece rather than do something about it today. My prediction: Look forward to a further downgrade of our economy after the timid budget is passed by parliament in December.

By Alexander Apostolides on November 11, 2010

Economic theory suggests an investigation of the milk market

One of the most common complaints by students when teaching economics is the fact that the government has not done anything to reduce the price of milk in Cyprus. The government has first tried by suggesting an unwise maximum price and then has done nothing over the issue as it is unsure if the high price is due to illegal price fixing.

Yet economic theory suggests that the government should do more to pressure the milk firms. The milk market is an oligopoly market: there are very few firms and their revenues are directly influenced from each other. As a result firms in an oligopoly market are directly dependent to each other in terms in terms of their pricing policy and profitability.

Thus, oligopolistic firms, such as the milk companies, face a dilemma. They dislike competing on price: if they decide to reduce their own price, it might lead to the reduction of the competitor’s price, reducing the profit of all firms in the market. However in such markets there is keen non-price competition as firms they strive to convince the consumers that their product is better in order to make consumers loyal even if the competitor has a price advantage. A good example of a successful loyalty campaign is by coka-cola: how many people do you know that would not drink Pepsi if “Coke” was not available?

Oligopolistic firms in Cyprus do compete using non-price means through mass advertising and product differentiation. You can pretty much bet that 9 out of 10 advertisements on the TV are from firms in oligopoly markets, striving to convince consumers that their products are different and better: banks, diapers, sanitary pads, broadband services and supermarkets in Cyprus spend massively on advertising but are less keen to compete on price.

This is where the milk market is suspect. The non-price competition of the milk market has been lukewarm at best; when was the last time you remember a two for one special offer on milk? There is some advertising and some product differentiation for premium products, but its intensity is nothing like the other markets under oligopolistic competition in Cyprus. Thus an investigation by the government would be suggested by the theory as milk companies might be co-operating in illegally fixing prices as suggested by the relative paucity of their non-price competition.

Other factors also point out that the Cypriot milk market is a ripe contender for collusion. The limited number of companies makes secret price fixing negotiation easier. In addition unlike other oligopolistic markets, the milk market is quite isolated from non-Cypriot competition. Our lack of rapid direct access to other European markets means that the Cypriot companies are not facing the same level of competition than in other Cypriot markets by foreign companies: we buy Danish and Greek cheese as it does not spoil as easily as fresh milk, but it is difficult to see Cypriot consumers preferring Greek fresh milk as there would be valid doubts about its freshness.

The wise solution is not a maximum price of milk as this could lead to chronic shortages of such a basic commodity. The solution is the beginning of an formal investigation, in a national or EU level, with the promise of immunity from damages to any company that first provides evidence of a price fixing cartel. This will reduce the incentives of anyone in the cartel, and allow companies to damage the competition by admitting to price fixing. This common practise of the EU might provide the answer to whether there is collusion, of the market, and give the possibility to firms to clear their name and satisfy my students that the current price of milk is the lowest these companies can aspire.

Sleepwalking into a major crisis: 1931, 2010.

In 1931 the colonial government of Cyprus was facing an unprecedented problem: possible bankruptcy. Having used up its meagre reserves during the economic recession, the government found a market that was unwilling to lend to it and a domestic population that was already squeezed hard by the combined calamity of declining global prices and exceptional drought. The colonial government attempted to raise taxation, but it was denied by the Cypriot legislative council, which was demanding that the government first reduced its wage expenditure. The governor did not want to be in conflict with the organisation he relied for in order to govern, and thus he decided that inactivity was the best policy. The result was a further slide in recession, social upheaval and rioting.
The similarities with the current situation are striking. In 2009 the current government was faced with a similar choice – the possibility that the unsustainable budget deficit would lead to future bankruptcy. Having attempted to raise taxation, they found their way blocked by the parliament, which was perhaps indirectly requesting that government expenditures (of which wages is the largest share) where first contained. The government’s response was to wait and borrow, unwilling to be in conflict with the powerful lobby of government officials that PASIDY represents. The result is that we are sleepwalking through the recession: shops are being shut, unemployment has reached record levels and not performing debts are mounting. The issue of this "wait and see" policy is clear:the government is not active in any major way to help the economy find its way to prosperity.
Like in 1931, the present government, is faced with the choice of either increasing investment to help the economy (which it can only do without borrowing only if it reduces government wages), or reducing investment and keeping those who help it rule satisfied. I worry that it has chosen the latter. The result is an economy that has no government helping hand while our public debt is still creeping towards the danger zone. Let us hope the parallels with 1931 end soon, before it is too late.

By Alexander Apostolides on November 02, 2010

Unemployment in Europe: UK, Cyprus and the success of Malta

The latest budget cuts in England made by Cameron, were made on the assumption that the private sector will pick up the slack in the labour market. However a recent report by the Chartered Institute of Personnel and Development (CIPD) launched a devastating attack on this suggestion by announcing that the spending cuts and VAT rise to cost 1.6m jobs. This is apowerfull a call to action against the excessive "slash and burn" cuts proposed by the conservative party.

Up to now the only silver lining in Britain recession was the fact that it managed to keep unemployment levels lower than the US or other European countries: Unemployment peaked at 7.8% when larger economies are facing a recovery with stubbornly high unemployment such as the Case of the USA (9.2%) and France (10.1%). These cuts, in their rapidity and suddenness, along with the rise of VAT will cause a leap in UK unemployment undermining the only positive news since the recession was officially ended with the recovery of GDP to positive levels.

On another note is the alarming and meteoric rise of unemployment in Cyprus which began in the end of 2008. It is noteworthy that our rise has perhaps one of the most sudden in the EU outside the former eastern block countries. Malta has managed to ride the recession in terms of unemployment quite well, and once again it shows us how small open economies that are good in exploiting the opportunities offered by the EU (both in terms of competitive service provision and absorbing EU funds) can do very well for themselves.

By Alexander Apostolides on October 20, 2010

The British Defence Spending Review and the Cypriot Bases

David Cameron announced a substantial defence review. Although the review was dressed up as a review of tactical priorities the fact was that the aim of the review was to substantially cut the defence budget by as much as 8%-10%.

The review has made some truly silly choices. The hugely expensive redevelopment of a more updated nuclear deterrent to replace trident and its submarines stayed, but the UK has effectively has killed all the units that gave it the capability of intervention in the Faklands, Sierra Leone and Iraq. If anything the UK military will be ever more dependent to US military power, and completely immobile in terms of offensive airpower: the surviving aircraft carrier and its harrier jets will be axed long before the two replacement aircraft carriers are ready. Even if the new carriers are pushed through the aircraft for them are not ready, unless the UK buys off-the-self carrier aircraft from another country. At an age where agility and surveillance is key, the UK airforce is being grounded - the Chinese news agency could not hide its joy.

This spells the end of the UK policy of increased intervention initiated by the Blair government, at for at least a decade until the new aircraft carriers are in place. Interestingly this may increase the importance of Cyprus (Akrotiri) as a base from with to handle the logistical network of operations in Afganistan. Although British troop presence in Germany will be winded down the report said nothing about Cyprus, whose role as a land based foreign airbase becomes more important as the air fleet looses all its carrier capability.

It is a loosely held secret that the UK offered Decelia to the G/C during some of the rounds of the Annan negotiation as it is considered it superfluous to requirements. However the UK presence in Akrotiri is here to stay, with the Acrotiri airbase becoming the only option for planes and men heading to Afganistan other than the hugely expensive in-flight re-fuelling process - this can be seen by the map below - which shows 1,100mile radii from Gibraltar, RAF Akrotiri, Al Udeid Airbase in Qatar, the French airbase in Djibouti and Masirah Island in Oman.

Lastly the role of the Cypriot Bases as a centre of surveillance is now as important as it was in the height of the cold war as the middle east surveillance is quite high in US and UK agendas.

A cold war U2 surveillance plane lifting off from Acrotiri

By Alexander Apostolides on October 15, 2010

Boys who cry wolf…

Boys who cry wolf…

I have been impressed with the complete silliness of discussion on the TV lately over the Cyprus issue. There has been a huge (and from what I gather popular) fuss over the issue of rotating presidency and the fact that the federal republic will have a qualified majority voting.

A little explanation of the two issues will show that this is a non issue since we have already surrendered our rights in both principles in the European Union, without a fuss. The decision making rules in the European council and the council of ministers the policy making bodies of the EU, are based on majority voting, more specifically qualified majority voting (QMV). This means that more populous members have more votes, but less votes that their total population. The republic of Cyprus has readily accepted this as the new Lisbon treaty changes on the QMV actually increase our voting power way beyond our population share. The democratic principles of “one man one vote” does not apply in the EU - a Dutch voter “matters” more than a Spanish voter since his nation’s representative in the EU has greater voting power than the population suggests through the QMV system. Below shows the change in power that the Treaty of Lisbon will enforce in 2014; notice the increase of voting power for microstates like Cyprus, which is over and above what their population entails.

This also is in place in the USA. Despite being a strong federal state with large central powers (something that Greek-Cypriot negotiators aspire to), the votes of each individual has different power depending on which state he resides. Florida voters have more power since they almost always elect so many electorates that it is irrelevant who wins in Rhode Island.

At the same time we have very enthusiastically agreed to rotation presidency of the EU. If we agreed to follow democratic principles of population we would have the presidency approximately once every 150 years. Yet the presidency of EU and of the European Council rotates among members every 6 months, meaning that Cyprus will be the president in 2012, just 8 years after our entry in the EU.

Thus in many ways the rotating presidency and the fact that the Turkish Cypriots will have voting power above their population are issues that we have already surrendered without a fight during our entry in the EU to other EU states. They are frankly non-issues as all federal states work on some sort of principle that has either of both of these policies in order to function properly.

The politicians who cry “WOLF” over these issues are trying to whip up the people against federation in general without suggesting anything else but a continuation of this situation, which eventually leads to a totally undesirable two state solution (without a single refugee of either community going back!). I hope that people will understand that these people cry “wolf” to get attention and that it is our duty to ignore them.

Ανάλυση: Κύπριος Οικονομολόγος κερδίσει το νόμπελ οικονομικής

Η απονομή του νόμπελ οικονομικών στους τρίο Peter A. Diamond, Dale T. Mortensen και του κύπριου Christofer A. Pissarides είναι ένα σπουδαίο παν-Ελληνιό και παν-Ευροπαικο επίτευγμα. Είναι αξιοσημείωτο ότι είναι από τις λίγες φορές που δίνετε νόμπελ σε άτομο (Δρ. Πισσαρίδη) που γεννήθηκε και εδρεύει εκτός Αμερικής, και συνεχίζει την σπουδαία παράδοση του London School of Economics αφού το σχόλιο έχει κερδίσει 15 νόμπελ οικονομικών και ένα νόμπελ λογοτεχνίας.

Οι Diamond, Mortensen και Pissarides επικεντρώθηκαν στο θέμα της ανεργίας και το γεγονός ότι η αγορά εύρεσης εργασίας έχει επιπτώσεις στο βαθμό και την περίοδο ανεργίας. Το σημαντικό αυτής της βράβευσης είναι το μήνυμα που στέλνει η επιτροπή οικονομικών Νόμπελ στον ευρύτερο κόσμο. Μέσα σε συνθήκες χρηματοοικονομικής κρίσης η επιτροπή έχει απονέμει το νόμπελ σε άτομα που έχουν σαν πρωταρχικό στόχο την ανεργία για να φέρει το πρόβλημα της ανεργίας στο προσκήνιο. Μέχρι τώρα τα μέσα μαζικής ενημερώσεις έχουν επικεντρωθεί στις επιπτώσεις της κρίσης στον τραπεζικό τομέα και τους λόγους της κρίσης, και έχουμε εν μέρη αγνοήσει την σοβαρή επίπτωση της κρίσης – ο ψηλός βαθμός ανεργίας. Η επιτροπή έχει κάνει κίνηση ματ και φέρνει πίσω στο προσκήνιο το πρωταρχικό κοινωνικό θέμα της κρίσης που δεν είναι άλλο από την αύξηση της ανεργίας.

Η βράβευση του Δρ. Πισσαρίδη δεν προκαλεί έκπληξη έκκληση κανένα οικονομολόγο. Σύμφωνα με την ιστοσελίδα ακαδημαϊκών δεδομένων “ideas” ο Δρ. Πισσαρίδης είναι στο τοπ 5% οικονομολόγων σε θέματα επιρροής σε όλη την υφήλιο. Το έργο του έχει αναφερθεί σε πάνω από 7,000 αλλά ακαδημαϊκά άρθρα και βιβλία. Οι αναφορές είναι αξιοθαύμαστες, καθώς η ανεργία δεν είναι ένα από τα καυτά θέματα στα οικονομικά.

Ο κ. Βασιλιού ανάφερε ότι είχε προτείνει το Δρ. Πισσαρίδη για διοικητή της κεντρικής τράπεζας της Κύπρου προ δεκαετίας, μια κίνηση που πιθανών θα απότρεπε το σκάνδαλο του χρηματιστηρίου (έχουμε ακόμα το ρεκόρ για την μεγαλύτερη αύξηση και πτώση χρηματιστηρίου μέσα σε ένα χρόνο). Δυστυχώς η θεωρία του Δρ. Πισσαρίδη θεωρείται άκρος επικίνδυνη από πάσα φιλολαϊκή και φιλοσυντεχνιακή κυβέρνηση, αφού η ερευνά του καλεί κυβερνήσεις να μείωση της ακαμσίας της αγοράς εργασίας. Καμία Κυπριακή κυβέρνηση δεν έχει εναντιωθεί στα πεπαλαιωμένα συμφέροντα οργανωμένων εργαζόμενων στο κυβερνητικό τομέα. Αυτό είχε σαν αποτέλεσμα την αύξηση της ανισότητας του κυβερνητικού και ιδιωτικού τομέα, τόσο σε θέματα δικαιωμάτων και μισθοδοσίας αλλά και με τον ιδιωτικό εργαζόμενο να έχει επιβαρυνθεί το συνολικό βάρος της παρούσας οικονομικής κρίσης. Αυτός είναι ο κύριος λόγος που η αξιοποίηση του Δρ. Πισσαρίδη από την Κυπριακή δημοκρατία ήταν περιορισμένη παρά που ο ίδιος ήθελε πάρα πολύ να έχει περισσότερη επαφή με την χώρα του.

Το λινκ είναι η συνέντευξη του Δρ. Πισσαρίδη μετά από την ανακοίνωση. Είναι αξιοσημείωτο η συγκίνηση του προς την Κύπρο και τους Κύπριους.

By Alexander Apostolides on October 11, 2010

Cypriot wins nobel in economics!

Professor Pissarides, a Cypriot and an LSE man, has just win a shared nobel in economics. Rumour has it that he tried to have an involvement with the University of Cyprus but politics left him out. What a shame that we can not seen to capitalise on brilliant Cypriots making wonders abroad.
the blurb from boolberg.

By Alexander Apostolides on October 01, 2010

The stupidity of the IMF in Greece

So the Greek debt is 125% of GDP. What is the solution the IMF is forcing the Greek government to implement? Make everyone dislike it by liberalizing the trucking business, as the resulting strikes have led to goods running out in the country's periphery.

It is very interesting that the ideal solution is quite obvious, while is very hard to implement. With the informal economy being estimated as large as 40% of the economy, the interception of such "under the table" activity should be the prime focus of any recovery plan. However doing this is hard: it upsets established corridors of power, it reduces nepotism, and affects the upper middle classes more than the poorer classes. Other economists argue that to reduce corruption and informal trading is impossible. The truth is that economic history teaches us that change is possible - the 12th to 16th century government positions in England where some of the most corrupt in the world, yet England champions its self a a bastion of clean governance today. The efforts to bring this informal economy to bear have been weak at best, partly as the IMF has not focused so much on this aspect of reform.

So what is the second-best solution actually dictated by the IMF? - A huge painful and bitter array of reforms, some of them necessary and some dogmatic. Up to now all efforts have been to reduce the government deficit, ignoring that this also reduces the GDP thus increasing the Debt to GDP ratio. In addition some reforms are being pushed along with the necessary reforms that are just causing more harm that good right now.

Exactly how much GDP growth would liberalizing the trucking business give to Greece? 3-4 % of GDP over 5 to 10 years? The current strike wave caused by such measures that could wait is at least causing negative fall of GDP (at maximum ) of 0.5% - 1% GDP today aggravating the main issue today - debt to GDP ratio.

So why do it now? Because now the IMF still believes that the hard shock therapy of the "Washington consensus" that was given to former communist countries is right - don't solve the issue - just introduce capitalism in all forms and the rest would be taken care off automatically.

In the mean time Greece is being plunged to further crisis, and the reforms seem increasingly unfair to the average Greek person, who hears stories and stories of corruption and government incompetence.

By Alexander Apostolides on September 10, 2010

Hooliganism and the birth of Agia Sofia Church

I used to think that hooliganism, especially in the form exhibited in Cyprus (political connections of fans with teams and parties), was a 20th century phenomenon. I can now say that hooliganism and political connections in sport are as old as sports themselves, since they all started from the Roman Empire.

The chariot races were divided usually in four factions: Blues (Vénetoi) and the Greens (Prásinoi) had come to overshadow the other two factions of the Whites (Leukoí) and Reds (Roúsioi). These factions began operating as teams, collaborating to deny others victory. By the Byzantine period the Green and the Blues began to look like clubs, and then started to have violent gangs while also working like political parties. Their power gradually extended outside the sport arena and into the political sphere, with Emperors or aspiring Emperors being supported (and giving patronage and support to) one of the two factions. The Emperors tolerated and even tacitly supported the growth of the two factions as centres of political and factional allegiance above and beyond the realm of sports, as they could ask their faction to support them in various political crises that erupted from time to time.

The results for the empire were disastrous. Justinian I, perhaps the greatest Byzantine emperor, decided that although he was once a fanatic supporter of the blues he would try and curb the violent hooliganism that occurred during chariot races. In 535 this decision left the centre of Constantinople burned to the ground, with tens of thousands of citizens killed.

On January 10th 532 the two groups started fighting after a race; there were many injuries and some deaths. The Emperor sent in the troops to calm the situation, and they arrested the ringleaders on both sides. Some were hanged but one Green and one blue escaped, and a mob of both Green and blues (who had up to that time, killed each other in street violence) surrounded them, asking for their pardon from the Emperor, who ignored them.

Three days later at the next chariot races the Emperor was faced with 30,000 blues and greens all shouting “NIKA (WIN)” in defiance to the imperial rule. Riots erupted from the stadium (hippodrome) and spread in the whole city by the angry crowd, who released prisoners, looted and burned churches, including the original Agia Sofia Church. In addition the organised mob, now united against the forces of authority, demanded an end to the harsh taxation and the death of the chief taxman of the empire, and went as far as electing a rival emperor. Justinian responded by bribing some of the blues into submission, as well as sending the army, who butchered the 30,000 crowd to a man.

As a result of the riots the capital of the greatest empire was a burned shell. Justinian, in an attempt to bring the empire to its former glory, constructed the Agia Sofia church as it stands today, on top of the ruins of the riots.

One wonders if our tolerance of hooliganism can lead to such extreme results. It is certainly plausible that the economic crisis increases the need to belong in extreme groups that aim to be violent, and that the political parties, and even the government, is far too comfortable with the football executives than is considered healthy. I just wish that the Nika riots are a historical warning towards appeasement with the violent thugs who ruin sports.

By Alexander Apostolides on September 05, 2010

The Truth about the damage done by CDO's desks to their Banks

It's time to kick out the complicated finance desks out of banks. If anything this amazing podcast - which is a part of Pro-publica and NBER radio to uncover the real jerks in the financial system who knowingly made the financial crisis worse, shows how the desks worked against the system and their banks for their own private gain.
The podcast focuses on the CDO desks of the banks who essentially cost their own banks billions so that they could keep getting commissions. The resulting bailout did not come out of their pay-checks, but was picked up by the world's taxpayers.
The global financial system needs a radical re-haul, and unfortunately those doing the restructuring have been made rich by it, and thus unlikely to push for radical change. Very depressing stuff.

By Alexander Apostolides on August 30, 2010

May you live in interesting times?

Terry Practhet wrote a fantasy book whereby two characters that had a different view of the world: One thought the title above was a curse and the other thought the ability to live in interesting times was heaven.

What fascinates me most when I switch between Malta and Cyprus is how reassuringly boring Maltese news are. Coming from a country that has seen, felt and is still experiencing the fruits of war and communal violence, I am struck by the fact that a great many of the social and economic problems of Cyprus are held behind due to the massive and continual exposure to the Cyprus problem.

A case in point: The front line in the times of malta was that "Birdwatchers return to look out for illegal hunting and trapping", while in Cyprus the front page of Kathimerini was about the possibility (if the hard negotiations work out) that famagusta might be returned to its citizens, who have been displaced since 1974.

We in Cyprus are being constantly ignoring issues that are just overshadowed by our collective national tragedy. I am struck at the potentially huge benefit that the society and economy that a solution would bring: we can finally then concentrate on the issues that have not been resolved not because of the their direct connection to the Cyprus problem but due to the fact they have been sidelined for over 40 years.

While the issue remains unsolved, we all suffer the consequences of a society with one tracked mind. Pyrgos, who followed the general trend of Greek Cypriot in voting no in the 2004 referendum, has remained dependent on government handouts for survival, while a solution would have solved the area's problems of communication and employment near instantly.

So give me boring news, over interesting times any day, and lets hope that there is a solution imminent in order for us to shift our attention on things that affect the everyday lives of Cypriots.

By Alexander Apostolides on August 06, 2010

Another worrying development for Obama - The economists fleeing his economic plans

Blomberg reports that Christina Romer, most notable for reconstructing the GDP of the USA during the Great Depression to tell a more controversial story, has also resigned Obama's economic team and is set to go back to teaching.
Although it is perhaps uncertain if Romer was a supporter the slightly Kenysian "spend spend spend" stimulus package of Barak Obama, the failure of the stimulus package in providing job growth is apparently making academics distance themselves from the effort.
I personally think academics should chose which side of fence - abstract academic thinking or policy making, and once they make their choice they should be made to carry their repercussions through. Oh and on a silly note, Mr. Obama, i am quite happy to take over Ms. Romers position, since i have also reconstructed GDP during the Great Depression.
Happy Holidays Everybody!

By Michalis Zaouras on August 03, 2010

Cyprus TV digital platform

Unfortunately we are witnessing another failure of the Cypriot authorities to control for the failures of the market. The market for television is far from competitive; I think the most robust argument to prove this statement is the subscription fees charged by the private channels (see mi-vision, nova, LTV). The main reason for the upnormal fees is the right to broadcast football matches which turns these companies to a monopoly against the fans of a particular team. However recently we have been experiencing another example of anti-competitive behavior. To be more specific I am referring towards the parties that are bidding to buy the rights for the new digital platform.

Three main parties have been trying to capture this new tool: Cyta, Cyprus telecommunication authorities, LGR and a consolidation of eight private channels. As for the last player, it seems to me obvious that there is a collusion going on. Additionally I would really like to know why the anti-trust authority has allowed for such a “consolidation” to be created and bid in order to acquire the new platform.

By Alexander Apostolides on July 13, 2010

Economic Podcasts

While waiting for my phone to finally stop having one of its many (unessential) updates I though I would tell you about two shows that are absolutely free to listen and download.

Planet money brings economics in the day to day life - it is not afraid to ask audacious questions, and has had a great success by being one of the first shows to get an interview with the head of the New York fed, a first in the New York fed's history!

A more general radio show which is perhaps one of the best of its kind is this American life. It has some excellent shows about the economy, for which they won an Emy for.

Both free, both excellent, both worth for you to check out...

By Alexander Apostolides on July 08, 2010

Krguman hits back!

Two great back to back op-ed by an economist that deserved his Nobel price in economics, unlike his president who did not deserve his for peace.

When i met Krugman in 2008 he confessed he was ignorant of economic history, although he appreciated its relevance. Now it seems the recession has made him more aware that history can help us in making better policy decisions.

The first called "the third depression" is a condemnation of IMF sponsored policy in reducing government budgets in the middle of a very serious depression.

The second is a heartfelt attack on the cowardice of congress, who has left the American unemployed with no other alternative than to cheat and steal after their 26 weeks of unemployment relief runs out.

We need a new economist that can put the issues of social fairness back in the agenda.... and personally i would love to see Krugman lead the way.

By Alexander Apostolides on July 05, 2010

The triumph of dogma: the IMF in Cyprus

I went to the IMF press conference on the Cypriot economy today. Mr. Bernard J. Loran was quite evasive, but the true intentions of the IMF where outed in the end.
What annoyed me was the way the complete conviction of their belief was clouded to prevent a fall out, while at the same time any other idea was dismissed as immaterial.

Mr. Loran kept stressing that a rapid reduction of the budget deficit is necessary, but kept stressing that this would "lead to growth". He did not manage to explain how exactly a fall in GDP that would lead to the economic growth - and that was intentional as any policy to reduce the government deficit will worsen the current recession. Mr. Loran did not have to explain it to anybody - dogma was more important that actual economic analysis on how a negative shock to aggregate demand lead to its growth.

Mr. Loran also used "wage flexibility" to hide the fact that the IMF demanded a significant reduction in public sector wages. It slipped out arguing that the government plan was not really urgent enough and the plan to reduce the budget deficit needs to be set in place immediately.

However in the end anything that was contrary to what the IMF version of events was dismissed out of hand. When I asked him if the IMF has conducted a study to see whether the reduction of government wages would lead to a rise in non-performing loans and thus jeopardise the Banking system, Mr, Loran dismissed me out of hand, despite the fact that the IMF has admitted that this was never a consideration and that such a study did not take place.

My second question was also dismissed out of hand. I explained that the large deficit is in part due to the very optimistic IMF forecasts of the Cypriot economy, which indicated the Cyprus having growth in 2010 and rapid growth in 2011, while in fact the crisis turned out to be most severe. I pointed out that by trusting overinflated GDP forecasts the Cypriot government got into a financial mess and is now is paying the price, but the IMF has never accepted its role for promoting government expenditure through very wrong forecasts. Mr. Loran sadly refused to even see the logic of the argument, or even discuss that the IMF might have had its small negative part to play in this current economic press.

It is so sad to see that IMF impose generic solutions without really modifying its advice to fit to the economies it monitors. What is worse is that the current dogma, even when it has proven to have errors, is still the only game in town for the IMF - and all other valid questions or approaches are dismissed out of hand.

By Alexander Apostolides on July 01, 2010

Greek debt and the stock market

Great Humour on what is happening lately....

By Michalis Zaouras on June 29, 2010

Corruption, is Cyprus different?

There has been quite a fuss lately in Cyprus about this issue, after the accidental exposure of an internal email from AKEL. Surely corruption in Cyprus is not a unique phenomenon. Additionally most of the people while they declare themselves against these practices they act differently when they are in need. As for the last one it is not contradicting at all, since a prisoners dilemma emerge. If everyone choose not to maintain corruption they will be better off from cherish corruption instead.

However an interesting question that arises is whether corruption is necessarily bad. Academia has not established a clear answer. It seems that if governmental agencies fail to deliver the required services corruption is beneficial, since the services are delivered by the corrupted agents. Note that I am not considering the ethical issues of this matter and I focus entirely on economic efficiency.

On the other hand, as an optimist, I refuse to accept that government agencies in Cyprus fail to be productive at all. As a consequence of that corruption in Cyprus has to be destructive. The problem is how to fight corruption. Academia again has been very creative as with ways to overcome it. A second best solution is to introduce competition between agencies. To be more precise allow two different agencies to have the same responsibilities; this at least will lower rents between corrupted agents. Obviously the right way to face this problem is to restructure the public sector by changing the contracts offered to workers in the public sector, invest to fight corruption within the political parties and even change the legal system with respect to parties’ sponsorships and so on. However doing that is not costless; labor unions which most surely control the decision making of political parties will not be easily convinced, but most importantly voters from the public sector will switch political parties if one of the parties tries solely to face this problem.

By Alexander Apostolides on June 16, 2010

A dedication to a true gentleman scholar

I have just finished my Ph.D. and I have realised that although I have thanked many people who have helped me over the years in the thesis, there is a more general debt which i will not be able to repay as Professor Angus Maddison (1926-2010) has past away.

Maddision was an economic historian of the old school - the school who thought that it was important to (to paraphrase David Landes) had to "think big". Many doubted his vision when he painstakingly started estimating the historical GDP of the world, bit by bit, country by country. Now over 45 years latter the world is indebted in having a huge dataset of the GDP of the world (broken in countries) from the birth of Christ until the present day. In that way he blew our blinkers away and forced us to look globally, long before the word "globalisation" became popular. It is one of the most cited sources and his vision enabled a tremendous amount of research as well as providing comparative context. He even estimated the GDP of Cyprus and Malta, proving to me that it can be done. It took me 5 years to prove that his estimate was 34% higher that what it should be for Malta/Cyprus; in the same amount of time he estimated the GDP of the world form the 1700's to 1AD. My phd was based on him and other pioneers who wanted to know in numbers the conditions of the past.

A polyumath and bit nosy, he stuck his head in all issues , from Chinese development to the moguls in India and Latin America. His dynamism, intelligence and restless spirit meant that he spread controversy wherever he went, not helped by the fact that he decided whether he liked you or not on first impressions.

His instinct on numbers and on "what was going on" was immense; his drive even more so. While quite unwell he finished a book which chronicles the history of the world since the roman empire in a qualitative way. I met him at a dinner to commemorate his new book less that two years ago. When he heard i was estimating the GDP of Cyprus and Malta for the interwar period he eyes shone "its a great research project, but you need one more country" he said excitedly, "why don't you do China?".

The exchange shows both his immense and global way of looking at things, and looking back it also shows his lament that he would not survive enough to complete such a grand project of getting robust estimates for china. I am so sorry to have disappointed him with my limited outlook.

I had asked him if it was possible to separate his data for small countries in order for me to able to better compare my series with his. I found out at my viva yesterday that despite being very ill he started separating his estimates so i could do just that, but he was never able to complete it.

Thus today i also dedicate my completed thesis on Angus Maddison - economic history is much poorer without him.

By Alexander Apostolides on June 15, 2010

The most dangerous and silly move by the Cypriot government

In one fell swoop, the government has managed to undermine the economy and our standing in international credit rating agencies. The government has moved the jurisdiction of the national debt out of the central bank, which is independent, and into the ministry of economics, which is not.

This is exactly the type of thing that led to the mess in Greece. The appointment of Dr. Orphanides as the director of the central bank was an inspired choice that affirmed the independence of the central bank from the government for the first time. This independence upheld the standing our our banking system at times when real political pressure was placed on the Bank by the government to accommodate a looser regulatory framework for banks (remember the pressure applied to the Central bank of Cyprus by the Minister of Economics in order for the Central Bank to give in to Marfin's demands for it not to move out of Cyprus?).

Yet the government now is sick and tired of having an independent authority challenging its decision and has devised a scheme to remove the handling of debt from the central bank. Once under the jurisdiction of the ministry of economics it is easier to place political pressure on the ministry than the bank. It a very short step from being able to place pressure to trying to fiddle the books - once the debt servicing is removed from an independent authority and it goes to a political authority where you boss is a politician the incentive to massage the figures is very large.

This decision takes us back 20 years. This government has now completely lost my confidence in being able to handle the economy of Cyprus - rather than tackling the issues that have led to a structurally unsound economy, the government is browbeating the defenders of sound monetary principles. Alas, I get the feeling that more poor decisions are on their way...

By Alexander Apostolides on June 12, 2010

The Economics of Gaza Tunnelling

There was a great interview with a person who is perhaps one of the main Gaza tunnel bosses. The tunnelling system has now reached a certain level of maturity after the prolonged blockage of Gaza by Israel.

The man very unusually sold his land to have enough capital to open a tunnel and there is free entry in the tunnel market, as long as the local authority, Hamas, is notified and a tax on all goods is paid to them. So it sounds like the market is operating in near-perfect competition terms. I am guessing that some tunnels may well end up coming too close to each other and collapsing, since the strip of land that connects Gaza to Egypt is pretty narrow.

What is very interesting is the fact that the tunnel's construction workers have a rudimentary welfare system in place. You get paid a certain sum of money for injury or death that seems to be set by nobody other than the social custom. Most ingeniously though is that when the tunnel is up and running the original construction workers get a share of any goods trafficked through it. This solves two problems:
1) running a tunnel needs less workers and so the other workers now left without a job can act as very active agents for business for the tunnel
2) The majority of the wage cost for building the tunnel is differed in the future rather at the beginning when cash flow is nil.

I found it interesting to note that the interviewers did not believe that weapons did not get smuggled through but they failed to grasp what the tunnel boss was saying: they were so many weapons that had already been smuggled through that their price was too cheap. This is explained by the fact that guns have a very high value relative to their bulk - making them perfect for their transportation through tunnels. High value low bulk goods are perfect for the tunnellers as there is great profit for minimal problems of running them through the dangerous Egypt/Gaza border strip. Thus too many weapons have been carried through, making them cheaper than in the Egyptian market.

What is much more difficult to smuggle is low value bulky goods such as cement, sand, piping and automobile parts (engines ect). Such material have been banned from entering Gaza by Israel, but because they can only be carried in limited quantities and they give limited value per kg, there is an insufferable scarcity of such goods in Gaza.

By Alexander Apostolides on June 04, 2010

Τι λένε γνωστοί οικονομολόγοι για την ελληνική οικονομία

From Today's Kathimerini (Cyprus)
Τι λένε γνωστοί οικονομολόγοι για την ελληνική οικονομία
Ο Νουριέλ Ρουμπινί δεν αποκλείει έξοδο της Ελλάδας από την ευρωζώνη ενώ ο Πολ Κρούγκμαν μίλησε για ενοποίηση των δημοσιονομικών και φορολογικής πολιτικής της.
Στην ελληνική οικονομία αναφέρθηκαν οι γνωστοί οικονομολόγοι Νουριέλ Ρουμπίνι, Αμάρτια Σεν και Πολ Κρούγκμαν κατά τη διάρκεια ομιλιών τους τις τελευταίες μέρες στην Ελβετία, όπως περιγράφονται από τον ελβετικό τύπο.

Σε συνέντευξη που παραχώρησε στην «Tribune de Geneve» ύστερα από ομιλία του στη Γενεύη, ο Νουριέλ Ρουμπίνι υποστήριξε ότι οι επιθέσεις που δέχεται η ευρωζώνη αποτελούν το δεύτερο στάδιο της κρίσης, που ξεκίνησε από τις μεγάλες επενδυτικές τράπεζες. Για την Ελλάδα πιστεύει ότι θα προβεί τελικά σε αναδιάρθρωση του χρέους, ενώ δεν αποκλείει έξοδο της χώρας από την ευρωζώνη.

Κατά τον κ. Ρουμπίνι, στην ευρωζώνη, περισσότερο από τον πληθωρισμό, η ευρωπαϊκή οικονομία απειλείται από τον αποπληθωρισμό: κρίση, στη συνέχεια ελαφρά ανάκαμψη, που ακολουθείται από μία νέα ύφεση, που οφείλεται στα προγράμματα λιτότητας που εφαρμόζονται για τη μείωση του ελλείμματος.

«Η Ελλάδα ίσως χρειαστεί να εξέλθει από το ευρώ και κυρίως να προβεί σε αναδιάρθρωση του χρέους της αναγκάζοντας τους πιστωτές της να συναινέσουν σε μεγάλες απώλειες.

Το σχέδιο σωτηρίας της Ελλάδος μεταθέτει απλώς το πρόβλημα. Όλες οι χώρες, συμπεριλαμβανομένων των ΗΠΑ, της Μεγάλης Βρετανίας ή της Ιαπωνίας, θα πρέπει να τακτοποιήσουν τα δημόσια οικονομικά τους, να μειώσουν δηλαδή τις δαπάνες και να αυξήσουν τα έσοδα από τους φόρους. Επίσης, η Ευρώπη πρέπει να αφήσει το ευρώ να διολισθήσει έως την ισοτιμία 1:1 με το δολλάριο, για να γίνει πιο ανταγωνιστική».

Στην ομιλία του Nouriel Roubini αναφέρεται και η εφημερίδα «Le Τemps» που σημειώνει ότι ο γνωστός οικονομολόγος αμφιβάλλει για τη δυνατότητα των χωρών, όπως η Ελλάδα, να υλοποιήσουν σχέδια λιτότητας τόσο αυστηρά.

Σύμφωνα με τον γνωστό οικονομολόγο, η Ελλάδα μπορεί να αποφύγει τη στάση πληρωμών προς τους πιστωτές της, τύπου Αργεντινής, αλλά να προτείνει στους δανειστές της να ανταλλάξουν τους τίτλους που κατέχουν με άλλους που λήγουν αργότερα, όπως έκανε η Ουκρανία και το Πακιστάν.

Για την ομιλία που πραγματοποίησε προχθές στη Λωζάννη ο νομπελίστας οικονομολόγος, Αμάρτια Σεν γράφει η εφημερίδα «Le Temps». Αναφερόμενος μεταξύ άλλων στην Ελλάδα δήλωσε ότι οι προηγούμενες κυβερνήσεις της Αθήνας είναι οι κυριότεροι ένοχοι της ελληνικής κρίσης, όμως οι αγορές την ενίσχυσαν στοιχηματίζοντας στη χρεοκοπία της.

Σύμφωνα με τον Αμάρτια Σεν, «ο πανικός που ακολούθησε κατέστησε πολύ δύσκολη την πρόσβαση στα κεφάλαια και αύξησε το κόστος δανεισμού. Και αντί ορισμένες χώρες της ευρωζώνης, κυρίως η Γερμανία, να φανούν αλληλέγγυες, άρχισαν να δίνουν μαθήματα. Κι έτσι χρειάστηκε να επιβληθεί στην Ελλάδα ένα πρόγραμμα λιτότητας πολύ πιο αυστηρό από αυτό που θα ίσχυε, εάν είχε ληφθεί εγκαίρως, με αποτέλεσμα η χώρα να βυθισθεί στην ύφεση».

H εφημερίδα «Le Temps» δημοσιεύει άρθρο για την ομιλία που πραγματοποίησε χθες στο Ιντερλάκεν ο Πολ Κρούγκμαν, κάτοχος του Νόμπελ Οικονομικών 2008, προσκεκλημένος του Ελβετικού Οικονομικού Φόρουμ.

Αναφερόμενος στην ελληνική κρίση, ο Αμερικανός οικονομολόγος δήλωσε ότι υπάρχει 50% πιθανότητα η Ελλάδα να χρειαστεί να εγκαταλείψει τη ζώνη του ευρώ, αφού είναι δύσκολο να κατανοήσει κανείς πώς το πρόγραμμα λιτότητας, που επέβαλε το ΔΝΤ στην Ελλάδα, θα μπορούσε να λειτουργήσει. «Το ελληνικό χρέος, παρά τις τεράστιες θυσίες των Ελλήνων, θα συνεχίσει να αυξάνεται έως το 2015 και θα φθάσει το 150% του ΑΕΠ. Ακόμα και αν η Αθήνα αποκήρυττε το χρέος της, όπως έκανε η Αργεντινή το 2001, τα προβλήματα θα παρέμεναν στο ακέραιο εφόσον οι δημόσιες δαπάνες ξεπερνούν κατά πολύ τα έσοδα και οι μεγάλες ανάγκες προσαρμογής θα εξακολουθούσαν να υφίστανται».

Η Ελλάδα συμπεριφέρθηκε με ανεύθυνο τρόπο και εξαπατούσε για μία δεκαετία, αλλά τα προβλήματά της οφείλονται επίσης και στο προβληματικό οικοδόμημα της νομισματικής ένωσης, πρόσθεσε. Η Ελλάδα θεωρούνταν για χρόνια ως ενταγμένο μέρος ενός συνόλου και μπορούσε να δανείζεται με πολύ χαμηλά επιτόκια, όπως και η Πορτογαλία, η Ισπανία και η Ιρλανδία. Όμως, ούτε η Μαδρίτη ούτε το Δουβλίνο «εκτροχιάστηκαν», όπως η Ελλάδα, ανέφερε χαρακτηριστικά

«Πάντως, η κρίση της υπερχρέωσης βρίσκεται ενώπιον μας. Και εάν δεν καταρρεύσει το ευρώ - ίσως με την έξοδο της Ελλάδας από το κοινό νόμισμα -η λύση θα ήταν η ενοποίηση των δημοσιονομικών και φορολογικών πολιτικών της ευρωζώνης. Η αγορά εργασίας θα πρέπει να εξελιχθεί προς μία μεγαλύτερη ευελιξία, ενώ η ΕΚΤ θα πρέπει να λειτουργεί όπως η αμερικανική κεντρική τράπεζα αγοράζοντας τίτλους, που κανείς δεν επιθυμεί», κατέληξε. με πληροφορίες από ΑΠΕ-ΜΠΕ

By Alexander Apostolides on May 27, 2010

Μα περιπαίζουν μας?

Κατά την παρουσίαση του πακέτου μέτρων στης 14/04/2010 για δημοσιονομική εξυγίανση ο υπουργός οικονομικών κ. Σταβράκης υπολόγισε ότι κατά το πρώτο τρίμηνο του 2010 το δημόσιο έλλειμμα για ήταν 55 εκατομμύρια εύρο. Την ιδία μέρα η στατιστική υπηρεσία ανακοινώσε το έλλειμμα που στάλθηκε στην Ευρωπαϊκή υπηρεσία EUROSTAT ήταν 76.5 εκατομμύρια εύρο. Δεν αμφιβάλω τα στοιχεία της στατιστική υπηρεσίας αλλά το γεγονός ότι ο κ. υπουργός έκανε παρουσίαση με λάθος στοιχειά, που μάλιστα βοηθούν την κυβέρνηση, με έκανε να ρωτήσω αν εν εμάς, την Ευρώπη η εν τον εαυτόν του που περιπαίζει ο υπουργός.

By Alexander Apostolides on May 26, 2010

The Shareholders of Apoel FC - LTV and KYKKOS are major shareholders

Since there is practically nothing going on in the premier league until after the world cup, I took the opportunity to see the list of the major shareholders of Apoel FC. This is certainly interesting as the club kitty is bursting with Champions League money, and thus it can be in a position to remunerate shareholders.

The list is here:

Some of the most noteworthy names is the fact that Kukkos monastery owns 1.67% of the company. It seems that our Church is not only tax free but it also loves its football!
More serious is the fact that LTV owns the majority share at 8.99%. This is not illegal, but it raises questions about the ability of football teams to bargain their TV contracts when the TV company is a member of the board and owns a substantial part of the company - there are huge conflict of interest considerations that have not been raised before.

If anyone knows if sky sports owns a part in premier league teams please let me know.

By Alexander Apostolides on May 25, 2010

Economics Talk and the Technical University of Cyprus

On Thursday the 13th of June 11:30-12:30 there will be a talk organised by the Cyprus University of Technology, Department of Commerce, Finance and Shipping.

The topic is Accurate and Robust Indirect Inference by Professor Elvezio Ronchetti
(University of Geneva)

More details can be seen here

Some of the insane demands on Greece

Although Greece is in a difficult situation, the demands by its would-be saviours are far and wide, extending far beyond the need for budget cuts.

The latest measures demanded by the coalition of lenders is a radical change of the pension plan of Greece. Although change is evidently needed, the demanded goals are far in excess of what exists in either Germany or even the United states. The Papadreou government is trying to mollify the changes, but it can do little as it is in not position to negotiate.

The demand for the pension system is that people can only retire in full pension after 40 (!) years of work. The pension they will get will be based on the average salary over their life time and not on the much higher final salary. In addition they will loose 6% for every year they work less than 40. As my wife pointed out, only the poor children selling tissues in the street of athens, who start work when they are 12 or 15, will be able to retire at a decent age.

The international lenders also demand an end to all collective wage negotiation, despite the fact such collective negotiation has been in the past very effective way in moderating wage demands. This will turn any protests in Greece ever more explosive, with the possibility of the shipping and hotel sector being crippled by strikes during the crucial summer period.

In addition the minimum wage is to be reduced from 740 euro to 600 euro and new employees could be saked without compensation for the first 18 months of employment.
A classic case of the cure being worse than the illness, A rapid default would have been better for Greece- it is now being forced to dismantle all of its welfare system, leaving most of the population worse off.

By Michalis Zaouras on April 30, 2010

Football and fair competition

The last two years we have experienced a unique version of football league structure. It has been argued that the introduction of the playoffs will increase the revenues of the teams, expanding in this way their available budgets of the teams and improving the quality of the games (by employing more expensive players). But is there a catch?

Let me first present to you the Cypriot system, by the start of a season until the completion of the first phase the teams have to play each other twice. When the first phase ends the league is split into three groups based on the rankings of the teams. The first one will decide who’s going to be the champion of the season; games are played between the top four teams. The second one is of a minor significance, played by teams between the middle of the league table. While the last group, is of some importance because one of the teams will be relegated.

The argument in favour of this revised system is that it will increase teams’ revenues. Unfortunately I haven’t found data on ticket sales to compare them with years before the change. Intuitively though it might be the case (not necessarily though), more games means more tickets for sale. The fact is that the total sales of the last 6 games (for the second phase) were equal to 77 550 from which 57 055 were sold in the first group. A 74% of revenues went to the top four teams which mean that the revenues of the top teams are increasing more than that of the middle and small class teams. It follows that this system might indeed increase the ticket revenues in total but at the same time it increase the financial gap between the big and small teams. Notice also that the price of the tickets might vary, in other words a football fan might be asked to pay more to see a derby enhancing the gap even more. In addition to that smaller teams are highly dependent on revenues from games with big teams, for the first round at least. If the interest on the games in the first round has been reduced, because football fans are more willing to see games of the second phase, then this will make things even worse for the smaller teams.

To conclude, I doubt that the new rules of game have helped all the teams in the same way. Last, if we indeed need to see a more competitive championship and not a 2-3 teams race for the title then the structure of the football league has to be revised again.

By Alexander Apostolides on April 27, 2010

Let the Euro fall? [Edited]

[OK i admit i was wrong - after a German Social Scientist pointed out Merkell had a HUGE election to fight, which she lost , partly due to the massive aid package announced last week. I leave the article here, but i realise that my position is wrong]

As far as I am aware no one has understood why Germany seems to be giving mixed messages over the possible bailout of Greece. As a result Greece is constantly being destabilised: every time the Papandreou government tries to find ways to stabilise the short term situation, the German government pretends to "act tough" sending the Greek bond spread to record levels.

The issue here is not the regional elections in Germany, which Merkel can afford to loose. The issue is not the cheating of the previous Greek leadership that landed Greece in the hot water that is is now.

The real issue is that the German government is trying to deflate the euro in order to initiate German recovery - irrespective of the cost to other European member states

The situation is quite simple: when the ECB was established Germany insisted that the organisation would act tough on inflation and keep the Euro strong. Germany had the strong Deutschmark and it was unwilling to allow its unreliable southern European neighbour to debase the new currency by running unsustainable budget deficits. Thus the ECB was established in a way that it very anti inflation - even at the cost of development.

Ten years later a pesky southern European state, Greece, does exactly what Germany feared - it run into trouble through unsustainable overspending. But this works to Germany's advantage. Germany has been increasingly frustrated by the reluctance of the ECB to pursuse expansionary monetary policy, which would aid its attempts of industrial recovery.

The fears about Greece affected the Euro - its has been falling against the dollar for some time now. This worked to Germany's advatage as it made its exports much more attractive - german exports in February were up 42.5% (!) from the exports last year.

So the German government seems to have devised a new plan: present a strong anti-inflation Euro currency and support the ECB outwardly, while at the same time drive the Euro even lower by "acting tough" against Greece. This will lead to the Euro becoming cheaper against other currencies, thus making German exports even more attractive. In the short term its a win-win for Merkell - she acts tough against Greece (and gets votes in Germany), she gets the Euro deflated (and gets more exports), and she does not have to admit that ECB pro-cyclical policy, that was demanded by Germany more than ten years ago, is not appropriate during a global slowdown.

However this policy - if it is the deliberate policy of the German government, is very dangerous as it is capable of spitting apart all the hard work that led to a united Europe. Greece is the thin edge of the wedge - with Portugal, Spain and Italy and France are next on the line. Their destabilisation can lead to serious consequences to the Euro, that can lead to states opting out of the currency. Worse Spain, France and Italy are significant trading partners to Germany, and a prolonged recession to either country would lead to significant reduction to German exports. In addition any subsequent decrease of Spanish and Italian wages vis-a-vis German wages might lead to a second round of exodus of German manufacturing. So in the medium to long run this policy is the worst the German policy can choose, not just for Europe but for future German welfare.

Unfortunately the long-run is just a long way away for politicians. Greece gave Ms. Merkel the rope by their silly policies, but Merkel is letting them swing on it for purely German-centred reasons - and the whole of Europe might pay for her myopia.

By Alexander Apostolides on April 25, 2010

A rare interview with the New York Fed Chairman

Planet Money - a public radio show that deals with issues in economics - has managed to secure a radio interview with the Chairman of the New York Fed, William Dudley.

The event is quite significant: prior to this interview, only Federal reserve's system's chairman, Ben Bernankie, made his views public. The head of the new York fed has only spoken to the media twice more in the bank's 103 years.

The New York Fed is by far the largest of all the reserve banks of America - in the latest crisis it played a very active role in saving the Investment house of Bear Sterns - that was a New York Fed bail out.

This interview breaks new ground as it shows that the American regulatory system is beginning to allow more public scrutiny of its actions, while at the same time reaching out and explaining to the public why some decisions were taken.

The interview is starling in other ways as well. It destroys Greenspan, the ex-Fed reserve system chairman. Greenspan argued that the Central bank should not meddle in the financial system as is terrible is spotting financial bubbles. Dudley argues that maybe the reason is that the Fed system never tried to spot and then deflate such speculation bubbles before it was to late. The new York Fed is now thinking of changing its charter so speculation bubble deflation is added to its list of duties (which include supporting the banking system, keeping an eye on inflation and maintaining the exchange rate).

Very positive news indeed - lets hope the fed system takes Dudley's ideas on board - and maybe the inflexible Eurozone also moves this way.

By Alexander Apostolides on March 20, 2010

Stavrakis' unrealistic comments

"Σε πολύ καλύτερη θέση από την υπόλοιπη Ευρωζώνη η οικονομία μας"

Αισιόδοξος ότι με το προτεινόμενο πακέτο οικονομικών μέτρων θα βρεθούν οι λύσεις στην οικονομία και θα εξασφαλιστεί ευημερία για την κυπριακή οικονομία και τον Κύπριο πολίτη για πάρα πολλά χρόνια, παρουσιάστηκε ο Υπουργός Οικονομικών Χαρίλαος Σταυράκης.

Really? The GDP of 2009 were negative by 1.2% more than what the minister predicted (prediction -0.5% - real results -1.7%), making 2009 the worse year for the Cypriot economy since 1974. In addition the latest unemployment figures show a substantial increase, inflation is negative (a worrying sign for the economy) and the government has just cancelled all major and minor projects with the exception of the GSP roundabout. In the mean time Germany has a balance of payments surplus (i.e. it exported more than it imported)and with the exception of Greece, Portugal and Spain the rest of the Eurozone is predicted to grow faster than our own forecast of 0.5%.

The situation is grim- its time for bold actions. Slash government wage expenditure and increase government investment before it is too late.

By Alexander Apostolides on March 01, 2010

Continued misrepresentation of the Cypriot economic reality

I do not know Mr. Azarides, professor of economics at Washington university. I am sure he is a good economist, but he should not talk about things he has very little knowledge such as the Cypriot economy.

In the article in politis the professor says that the crisis is a joke - Cyprus will be awash with money since sooner or later we will go back to our rapid growth rates. Azarides did not take into account that:

1) people are not interested so much on levels on income but its rate of change. That is what worries us - thus the fact our development level is close to the European average does not affect our psychology and spending patterns.

2) our growth was mainly through catch-up. We were lagging in technical and professional skills. Our rapid growth was mainly due to our relative underdevelopment - we grew rapidly as we were catching up to more developed countries. This is now not the case any more - we are very close to the technical frontier of the world economy.
Thus now unless we increase investment, growth and recovery will be very difficult.

What worries me the most is the fact that we have no new export industry lined up: the tourism industry is in decline and the accounting services have reached maturity, yet there in no new industry to take their place.

By Alexander Apostolides on February 25, 2010

Economics 101: Why the strike action by the petrol stations was doomed to fail.

I know it sounds like hindsight, but I was sure the strike would fail. The reasons can be explained through A-level economics. Petrol stations are facing monopolistic competition: they are many of them, selling nearly identical products but having some sort of monopoly over a small geographical region. In this sort of competition environment it is impossible to have unified strike action (or to be correct the terminology the action was a lock-out since the petrol stations are employers and not employees).

Imagine you are one of the station owners. You heard about the strike and you see a queue of cars lining up to fill up before the deadline. You make as much as 5,000 euros in a night, a large part of which is profit. You suddenly realise that this what is your short term gain will be someone’s medium-term loss: all these people filling with petrol will not need more petrol for at least two more weeks.

So how do you make a profit over the next two weeks? With all the other stations in strike action you sense that the monopolistic competition has ceased: the monopoly you have over a small geographical region expands to include the whole city, maybe the whole district! The demand for your specific stations will shoot through the roof and the profit you can make is substantial, even if you lower your price to low government price that your co-owners are striking against. So you have a huge incentive to stay open and capitalise on being a true monopoly, if only for as long as the strike action lasts.

Not all station owners think like this, but enough do to leave a couple of dozen stations open. It does not mean that these owners want the lower government price or that they are greedy: maybe they are mired in debt, maybe they have children in college and they see that this short term windfall could tie them over for at least a year. Station owners are not workers who work for a fixed wage; a worker who ignores a strike action stands to gain very little, but a station owner stands to gain all the clientele of the stations that remain closed.

So the first day of the strike 43 station owners stay open: it becomes public knowledge, angering all the other owners who were faithful in the lock-out. They realise that they will miss out on the windfall and that the open stations will profit out of their stations remaining closed. One-by-one the stations re-open, until the leadership realises that they need to suspend the lock-out in order to save face before all the station owners take the unilateral action to open their station.

Ultimately the station owners cannot strike effectively; only the handful mining companies, operating under oligopolistic completion, can enforce such an action.

By Alexander Apostolides on February 11, 2010

Don’t send messages to radio stations!

I am a big fan of “Super Sport Fm”. I like their programmes, especially when you can call and have debates with other fans. That’s why i was upset on the 24th of September 2009. At around 10:30 Mr Kostakis Kostantinou, of the show “Kostakis kai paseis Kuprou”, became very upset from a text message sent to by a mobile phone. The message was sent to the station and not to Mr. Konstatninou’s phone. However, Mr. Kostantinou told the whole mobile number on air and told his listeners “to show the guy who texted what kind of a rotten man he is”.

I was appalled because I quickly realised that if this is legal then the whole system the radio station was based was threatened: an employee released private data sent to in confidence to the station to the public domain. I always thought that your mobile number is kept in confidence and then discarded. I did not like the fact that the person swore at Mr. Kostantinou, but I felt the station had other ways to deal with this, such as blocking the number from sending messages or by Mr. Konstatinou telling him to buzz of by just telling the last 3 digits of his number.

I contacted the radio station and the promised to look up the issue. On the 29th of September the same thing happened again with the same radio presenter. Thus I made a formal complaint to the Cyprus telecommunication authority. I contacted the station again and I was assured that the station realised the error of Mr. Konstantinou and he was told on no uncertain terms never to release information provided to the station in confidence. Thus the station’s response was awesome: they soon realised how this incident could hurt their credibility. The incident never happened again and I soon forgot about it.

Today I received a letter from the telecommunication authority: it argued that there was not violation of the regulatory law and regulations of broadcasting of 1998 and 2000; I am guessing this was because the data protection act was signed in Cyprus much later at around 2006. Thus the authority did not believe the Mr. Konstantinou’s actions fell under their remit.

So I called the new independent service of data protection that was opened recently with so much fanfare. I was put through to Ms Noni Abraam. She was puzzled why i even bothered: since i was not the man whose number was publicly broadcasted: I explained the reason of my concern and asked her if she would report seeing someone steal a car even if it was not hers. I explained that it bothered since it meant that employees of any TV and Radio station could collect private data such as our numbers sent to their shows and sell them to advertising companies or political parties without my consent, and that at no time did any station tell us what it did with the numbers its collects. She answered that although she believes Mr. Kosntatinou acted improperly, she does not believe that radio and television is under their remit.

So there you have it: every time you call or txt on tv the radio station (especially if you add your full name for a competition) then the station has the right to sell off that number database to the highest bidder without consulting you simply because the two independent authorities do not have the teeth / correct attitude and prefer this matter to fall in the no-man’s lands between their remit. I feel that all these new bodies being created are toothless and thus useless and have managed to gain the civil service mentality of “why bother” very quickly.

This is the best description of Cyprus coming out of this example: expect nothing from governmental organisations; except less than nothing from semi-government organisations; and if you want anything done, go to the private sector.

By Alexander Apostolides on February 10, 2010

The chief executive of Eurocypria must go.

Eurocypria is a charter airline that is owned by the republic of Cyprus. It had never made money, and it was a great way for the government "friends" in highly paid places. The EU put a stop of that and gave us 10 years to sort it out. The government placed a new executive and set it to work to make the company self sufficient and not dependent in government handouts.

Six years later the CEO Lefteris Ioannou went to parliament this week and demanded a further $35 million euros or the company will close on Friday. What he did was bend all of us over a barrel- it is simply inexcusable for a CEO of a company who had 6 years of government handouts to come to parliament and blackmail the parliament while keeping his job. This is especially true since any hand out would lead to a fine from the European commission as we would be seen as unfairly subsidising a domestic company.

The money should be given on a week by week basis, but only if a parliamentary recovery program is in place. The parliament should also demand the resignation of all the officers of the company. Passing Eurocypria a blank cheque is not the answer: what the government needs to do is similar to the US and AIG by making a step by step intervention by the government to ensure the company manages the handouts correctly; this is the only way forward.

By Alexander Apostolides on February 02, 2010

Re-hosting an article by the UK Telegraph about the Pension Plan of The Bank of Cyprus

Does the Bank of Cyprus have the answer for the UK's final salary pensions crisis?
More companies are closing final salary pensions to both new and existing members as the costs of running them soars. But some employers, such as Bank of Cyprus UK, are looking at innovative new ways to replace these pensions for workers.

By Tony Pugh
Published: 12:21PM BST 11 Sep 2009

Barclays is just the most recent high-profile employer to announce its intention to close its final salary scheme to existing members as well as new ones. As more companies close their traditional pension schemes, employees are understandably worried. Can they really save enough for their retirement as well as meet those immediate financial demands – saving for the deposit on a home and repaying debt – which compete with long-term savings?

The answer may lie in an innovative alternative savings scheme. It lets workers distribute their combined employer/employee pension contributions between a pension plan for the long term and a general savings plan that can help with more pressing financial needs. As the 200 employees of Bank of Cyprus UK are learning, the scheme's flexibility offers them real choice, not merely the investment choices and limited benefit payment options of the typical defined contribution plan.

The bank called on Mercer's consulting team to help it design the new scheme, which came into being in January of this year. The new pension plan replaced the bank's traditional final-salary pension scheme which closed to future savings at the same time (the scheme had been closed to new entrants since 2003).

The new arrangement consists of a defined contribution pension plan featuring a flat-rate employer contribution of 7.5pc of basic salary, with the bank matching up to 7.5pc of further employee contributions–a potential 22.5pc maximum contribution. That's well above the typical 10.4pc average cited in a Mercer survey of UK defined contribution pension schemes.

In addition, employees have the option to divert some or all of their contributions into a short-term savings plan, linked to the bank's prevailing One-Year Bond interest rate, which will vest (pay out) every three years. Employees can also revisit and change their participation level every three years.

The scheme recognises that employees are at different life stages. While some employees may be focused on maximising their retirement nest eggs, others may prefer to balance their pension provision with shorter-term savings priorities. The scheme meets either need, and as a result Bank of Cyprus UK has seen every one of its employees – from the chief executive downward – voluntarily join either the general savings or pension sections of the plan, or both. Clearly, it's an idea whose time has come.

"We wanted to come up with something fresh and new for all employees going forward," said Tony Leahy, the bank's head of human resources and communications. "For many of our employees, pension savings fell behind other financial priorities, like clearing student debt, or saving for the deposit on a house. We wanted to reflect this in our new arrangements."

Significantly, noted Mr Leahy, more than 80pc of employees have joined the pension plan (of which 20pc have elected to split their contributions between pension plan and savings plan). Also over 85pc of plan members are making personal contributions to the scheme, versus only 34pc who had made such contributions under previous pension arrangements.

"We're also finding that of the 20pc who chose to join only the savings plan, over one-third are over 45 years old," added Mr Leahy. "The indicators are that they're using the plan to fund other more immediate priorities. Originally, we thought that only younger employees would be attracted to the savings plan, but that hasn't been the case–it's attractive to people at every age band, as is the pension element."
Mr Leahy credited this to a combination of good design and good communication. As the plan was being rolled out, each employee received a comprehensive information pack and attended offsite presentations by the bank and Mercer. The presentations outlined the features and benefits, while focusing on the broader topic of financial planning and the benefits of making early provision for retirement savings.
Part of that education included discussion of the tax implications of the new arrangements. Basically, under the savings plan, taxes and national insurance are deferred until the benefits are paid on vesting. Members will receive guidance prior to vesting to help them decide on the most tax-effective means of utilising the accumulated savings in their plan. This may include maximising tax relief by diverting some of their savings back into their pension plan.

For Anastasia Daniel, who works in the bank's marketing department, the plan's flexibility is a key to its success. A mother of two, she has chosen to make all her contributions to the pension scheme – for now. "I am thinking long-term," she said, "but my needs may change, so it's reassuring that I can reconsider every three years."

Ms Daniel admits that the bank's employees were initially concerned about the closure of the final salary pension scheme, especially long-term employees, but added: "We were pleasantly surprised with the outcome."

Other feedback has been uniformly positive, not least of all from trade union representatives and members of the bank's democratically elected Employee Forum group. In one letter of testimonial, the accredited union representative praised the bank's openness with the union about its rationale for change and its desire for a more sustainable scheme, calling it "an innovative arrangement".
The flexibility of design, options available and generous contribution levels make it an attractive scheme which has been well received by the staff." And an Employee Forum representative wrote that it "successfully engaged employees" in responding to a "thorny and emotive" benefit issue.

Clearly, employees understand that companies with final salary pension schemes are facing increasing difficulties in maintaining them. Such factors as increasing life expectancy in the UK and the high volatility of stock markets at a time of global recession have given rise to significant deficits for many traditional pension schemes.

The Bank of Cyprus UK's solution sought not only to address the sustainability of its pension offerings but the inequality between employees, many of whom had joined the bank after the final salary scheme had closed to new entrants in 2003.

"All in all, the new scheme ticks a lot of boxes," says Anastasia Daniel. "It meets the diverse needs of all of us, and is perceived quite positively by the staff. I have recommended it to contacts at other organisations."
Author Tony Pugh is head of UK defined contribution pension services at Mercer. Based in London, he is also consultant to a number of multinational companies, providing advice on all aspects of their pension arrangements.

By Alexander Apostolides on January 27, 2010

Re-hosting a article by Joseph Stiglitz defending Greece

A principled Europe would not leave Greece to bleed
Unless it is one rule for the big and powerful and another for the small, the EU must stand behind Athens' new leadership

Joseph Stiglitz

Greece has been condemned by European officialdom for its huge deficits. "No government or state can expect from us any special treatment," comes the warning from Jean-Claude Trichet, president of the European Central Bank. But Trichet failed to note that there had long been a double standard – in effect two Maastricht treaties, one for the large and powerful countries, another for the smaller and less powerful. When France broke the EU edict not to let debt exceed 3% of GDP, there were strong words, but little else.

Of course, Trichet may claim there is a difference between what Greece and the many other countries that have broken the limits have done. There is a difference of size. But there is also a difference in culpability and consequences. Greece's large deficit has implications for the future of the citizens of Greece, but not for the stability of the euro – unlike a similarly large deficit on the part of one of the larger countries.

A large part of Greece's deficit is the result of the global recession, whose impact was felt acutely by many countries who were not responsible for causing it. However, the global crisis did reveal the deep-rooted structural problems of the Greek economy, which had deteriorated further during the last six years under the previous government. Unfortunately, European leaders have compounded Greece's problems. Their statements have sent the interest rates it has to pay soaring, making it all the more difficult for Greece to tame its deficits.

Instead, they should have welcomed the efforts of Greece's new government. At least it has come clean about the dishonest accounting of its predecessors. Like America's banks, it could have tried to keep up with a system of dishonest accounting, hoping that it would not be caught out. But Greece's new prime minister, George Papandreou, has always stood for honest and transparent government. Europe should be coming to the assistance of this kind of leader, not making his life more difficult.

Greece is among the poorest of the European family. Part of the basis of the success of the European project is a sense of social solidarity, which entails coming to the assistance of those who are less fortunate. When the euro was created, many economists worried about the lack of stability-solidarity funds. If Europe had developed a better solidarity and stabilisation framework, then the deficits in the periphery of Europe might have been smaller and they would have been more able to manage them.

Economic downturns often affect those in the periphery much worse – they are the victims of their neighbours' failures. It is common wisdom that when the US sneezes, Mexico catches a cold. But more recently, this aphorism has mutated: Mexico now catches pneumonia, as its fall in GDP last year showed.

Part of the reason for the success of America's "single market" is that there is this sense of social cohesiveness, and a large federal budget to support it: when one part of the country has difficulties, federal spending can be diverted to help those parts that are in need.

While Europe may not yet have an overall budgetary framework that can fully address weaknesses in one part or the other of the EU, it should at least adopt the principle of "do no harm". For the ECB to announce that it will not accept Greek bonds as collateral would be counterproductive. For the ECB to delegate judgments about the credit-worthiness of Greek bonds to the rating agencies would be more than just irresponsible; it would be reprehensible. Delegation of effective regulatory responsibility to the rating agencies is partly what got the world into the present mess; and the rating agencies' judgments have proven to be deeply flawed – underrating the risk of mortgage backed securities, but consistently overrating the risk of certain sovereign debts.

With Europe's economy still weak, an excessively rapid tightening of its budget deficit would risk throwing Greece into a deep recession. Adjustments always take time, and are always painful. Europe should reframe the short-run budgetary targets it sets for Greece in terms of the structural deficit – what the deficit would have been had the country been able to achieve full employment. In recent years, even the IMF has reframed most countries' budgetary targets in terms of the primary deficit – net of interest payments, recognizing that volatile financial markets mean that interest payments are not really within a country's control.

The EU could and should show support for the honesty and integrity of Greece's government and its efforts not only to bring the budget under control, but to increase transparency of the entire budgetary framework and to reduce corruption. The EU can go further: institutions like the European Investment Bank should undertake countercyclical investments in the country, to offset the deflationary impacts of the budget cuts. Europe should show that it will stand behind Greece, much as the IMF provides support funds for developing countries. The provision of such support might lower interest rates, and make it easier for the country to reach budgetary balance. The EU, the euro, and the premise of European solidarity is being tested again. The measure of Europe will not be in the harshness of its actions, but in the spirit of solidarity that it shows in assisting its neighbour.

America too has unprecedented deficits, as do many countries around the world. Like Obama, Papandreou inherited an economic situation that was not of his making. Both of their predecessors had made mistakes of colossal proportions. Both of their predecessors had engaged in dishonest bookkeeping – but Bush's pale in comparison to that of Papandreou's predecessor. Both were elected on a platform that promised change, and both brought new standards of honesty and transparency to government. Both had their original vision compromised by the exigencies of the economic situation they confronted.

For the sake of European solidarity and democracy, Europe should support Papandreou's efforts in every way they can, not turn their back on the people of Greece who must be convinced that supporting the government's austerity measures is in everyone's best interest. © Guardian News and Media Limited 2010

By Alexander Apostolides on January 07, 2010

Small states and Trade: Lessons from the Great Depression

The interwar growth performance of Malta and Cyprus adds substance to the economists that seem to think of small economic units as disadvantageous. Kuznets argued that small states could weather turbulent economic periods by either relying on their proportionally large resource endowments or by ensuring continued support form a greater economic power. The experience of Cyprus and Malta indicates that things are than in Kuznets' assertion. Cypriot copper mining experienced a serious and severe downturn during the great depression. The natural resource endowment of copper was still subject to global prices, meaning that incomes of small states such as Cyprus are even more vulnerable during uncertain global trade conditions. The low price for copper, combined with the devastation of the agricultural sector due to drought, led to a deep and sustained fall of output during the great depression, wiping out all the per capita growth that took place in the 1920s. Malta might have escaped the worst effects of the great depression due to the expenditure of the British armed forces, but at the same time the relationship had significant negative effects: Maltese economic growth was related to a function of British defence policy, while the military deemed that such expenditure gave it the right to undermine attempts of diversification and political independence if it believed that its interest on the archipelago were under threat. Thus Kuznets supposed refuge for small economies have significant negative repercussions, that affecting their economic performance: a large resource endowment relative to the economy's size exposes the economy to violent downturns at times of global trade turbulence, while a economy dependent on military expenditure might isolate itself from a world recession but expose its self to greater dependency and the undermining of its political and economic independence.

In fact, small island economies are "fair weather" performers: at times of global trade expansion and economic liberalisation, such economies prosper, while during the turbulent interwar period their economic performance was poor. It is not surprising that Easterly and Kray seem to think that small states have "small problems" since their period of analysis is 1960-1995 a period of near uninterrupted trade liberalisation and massive trade expansion. The ability to trade for goods and services enables these economies to overcome the serious disadvantages of their small economic size, particularly in developing manufacturing. During the interwar period it was the manufacturing sector that provided the largest opportunity for productivity enhancements as Europe assimilated the advances of the "second industrial revolution". Yet the islands could not capitalize such advances because of the increasing protectionism in Europe and the Mediterranean. Without trade one could not achieve the minimal efficiency scale for modern manufacturing units; without the modernisation of manufacturing the islands were hampered from achieving the largest productivity advances in the interwar period. Unlike Greece or Turkey, the islands of Malta and Cyprus could not stimulate domestic manufacturing through protectionist measures, since internal market was too small. Small island economies should be the strongest proponents of free trade since the economic history of Cyprus and Malta indicates that protectionism is partly to blame for their poor economic performance in the interwar period.

Kuznets, S., “Economic Growth of Small Nations” in Robinson, E.A.G. Economic Consequences of the Size of Nations, (London: Macmillan, 1960), p.14; Kuznets, Modern…, (1966)

Easterly, W. & Kray, A., “Small States, Small Problems? Income, Growth and Volatility in Small States” World Development, Vol.28, No.11, (2000), pp.2013-2027, p.2014

World Trade Organisation, “Information-World Merchandise Trade 1921-38” as consulted 21 Dec 2009