By Alexander Apostolides on April 15, 2011

Intercommunal Blogger Event - See you there?

Fellow Bloggers,
I just wanted to bring to your attention the event for bloggers of all shapes and colour arranged by the Cyprus Community Media Centre. The event is on Friday and Saturday 29 & 30th of April and its is free - you just need to register.
So I hope to see you there,
Alexander Apostolides

By Alexander Apostolides on April 09, 2011

Economic Activism at it's best

I loved activism that is by the young and that is hard hitting. Andrew Lansley of the Cameron government wants to bring many US style reforms to the NHS, despite the fact that :
a) the American healthcare system is even greater financial problems that the NHS
b) the NHS needs some peace after 15 years of radical reforms every 2 years in order to get the growing pains of reform out of the way and thus see if the feform has the desired effect.

With over 1.5 million hits this is the best way to get a message across, and much more effective that the Cantona money withdrawal we discussed in this blog a while ago...

By Alexander Apostolides on April 08, 2011

Migration: Its (Hidden) Economic Benefits

Due to the upcoming debate on emigration organised by OPEK and ELIAMEP (details here) i just wanted to point out 2 positive economic arguments for economic migration that one never hears in the local media:

1) Migration can help our pension fund deficit.
More people are retiring and pensioners are living longer; these reasons, combined with he fact that we are having less children to replace the adults who retire, leads to pension system crisis in most EU countries.
The dependency ratio, the ratio of how many are not working relative to those of working age is increasing; as a result those who are working will have a greater pressure to subsidize the living standard of the majority who are retired or underaged. The solution could be to lower the amount given to retired persons (as advocated in the UK by its switch from final salary to an average salary pension scheme) OR to allow migration.
Migrants are in the working age bracket and thus they allow a decrease in the dependency ratio, with the social contribution allowing retired people to keep living with the income they are used to. Considering that many migrants do not get the full benefit of their welfare contributions as some emigrate back to their countries, the pensions funds of EU countries could be placed in a much sounder footing if more migration of persons of working age were initiated.

2) Migration can lead to complimentarity and increase in skills.
If developed economies have a high wage for unskilled employment then they run the risk of being uncompetitive - this is especially true for countries in the European Union since the are many countries in the EU whose cost base is much lower, thus creating an incentive for factories and offices to move from countries with a high wage environment to a low wage environment. Migrants taking up unskilled work enable local workers with the advantage of language to up-skill themselves allowing for a much more competitive products both in price and in quality. The concern must be to push for our domestic workers to up-skill themselves and thus create a complimentary cycle with the incoming migration.

If migration is not encouraged then one might actually lead to economic degradation and the movement of work positions to cheaper European destinations.

One does not deny that there are social and other problems regarding migration in our islands of Malta and Cyprus, but at least for the author the economic case for increased but controlled migration is very clear. Comments and Thoughts welcome as usual.

The credit rate slide in Cyprus is mostly due to government actions

The other night the President has called that the problems of the economy were partly inherited by the previous government and mostly from abroad and that his government did nothing to make things worse.

I have mentioned previously how this is actually not true. The economic crisis started in the US in 2007 and spread in most of Europe and the world by 2008. Despite warnings that Cyprus will be affected, and the emerging problems in several sectors, such warnings were ignored by this government. The serious slowdown in taxation revenue and investment was a warning sign of a economic recession that lay ahead, but the government again ignored these warning signs.

The statistics Cyprus submitted to EUROSTAT indicate that just as revenues of the government were falling at an all time low in the last quarter of 2008 and in the first quarter of 2009, the expenditure of the government, and particularly wage expenditure, was rising dramatically. When revenues were falling, expenditure was rising, causing the government to need to borrow exactly at the time when the international markets were nervous of governments that refused to reign in the expenditure in the face of such revenue shortfall. The credit downgrade of our government was thus in part due to government actions; although most credit rating agencies cited the large size of our banking sector as a concern, the inability of the Government to live within its means became an ever more important factor in our continuing loss of credibility.

The fact that in 2008 and early 2009 the government increased its wage expenditure just when revenues were dramatically reduced resulted to the government wage expenditure rising to 50% of government revenues by the end of 2009. This meant that just when the economic recession was reaching its peak in the private sector, the government cancelled an alarming number of investment projects in order to satisfy the need to pay its employers. Government investment is crucial when private business is facing uncertainty: it replaces the investment that private business holds back and provides the momentum for the economy to begin the road towards recovery. The retraction of government investment in the third quarter of 2009 in order to pay government wages meant that the recession was both made worse and was prolonged for at least another quarter.

Any attempts to reduce the wage bill came to late (in early 2010) and have so far have managed to just reverse the mass increases in the wage bill expenditure that this government initiated; they have failed to stop the upward trend of government wage expenditure. In fact the government's emphasis has been on increased taxation and borrowing, further crowding out private business and increasing the size of government to the GDP. This is serious: there is not doubt that interest rates are high in Cyprus, but this just might be because the government sucks it a substantial number of domestic savings due to its large borrowing needs, the credit available to private business men and households is reduced, leading to high interest rates.

This government can not play the role of Pontius Pilatus and wash its hands of the economic problems of the island. It was not responsible for the economic crisis, but it has a large share of the blame for the poor management of the crisis. It made bad decisions and it showed a lack of courage to get important reforms through. The government was aware that revenues were falling, but it seemed that the message did not percolate through to the persons hiring government employees and raising government wages.

The President should look at his advisors: did they not warn him of the outcome of such decisions and the need to tackle the government wage bill forcefully and immediately as the Governor of the Central Bank asked him to do? If they did and they were ignored then the onus of the poor management lied to bare with himself and his cabinet.

By Alexander Apostolides on April 06, 2011


A certain minster recently stayed for over a week in VIP accommodation having VIP treatment, and then donated a bunch of pc to get his picture in the local (and the Cypriot) papers. The cost to the taxpayer.... I let you decide.

In contrast I saw the Governor of the Central Bank of Cyprus fly economy class from Prague, where I am guessing he spend the weekend (national days do not count if you are in the Euro-system) locked in one meeting or another.

The funny thing is that the minister is a member of an elected government and hence theoretically countable to the voters / taxpayers who foot the bill for his shenanigans, with the unelected bureaucrat (who many in the government have unfairly attacked) is thriftily taking heed of the need to restrain government expenditure. It is not the first time that Dr. Orphanides shows us the way; let us hope that those who we elected will follow him.