By Alexander Apostolides on September 27, 2011

Number Crunching: Why all efforts to reduce the budget might have been futile...

I was told to try and be more positive on the goings on in Cyprus. As a natural born optimist I try, but unfortunately it seems that no one connect the bigger picture - which is completely dire.

1) Possible savings if the measure to withhold the wage indexation of government employees (ATA): 130 million over two years. Will cost 130million more after 2013...
This measure passed with great resistance and with a strike from government teachers.
2) Cost of the contribution of Cyprus to the Greek bailout plan: 150 million
Thus our actual savings is -20 million

In addition:
Amount of short run debt that needs to be rolled over (reborrow) by the end of 2013: 9.9 billion. Amount the Republic of Cyprus is planning to borrow on a 3 month basis 100million. Thus amount we need to roll over soon on a much more expensive interest rate has topped the 10 billion mark.

Oh and what happened to that "loan" from Russia? Can someone please explain who you announce such a deal before it is finalized - and why there has been such a delay in closing the deal?

So once again I tried to write an optimistic article, but my optimism evaporated by 11:00 am. I hope you have a more optimistic day...
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By Alexander Apostolides on September 09, 2011

From a series of bad choices, we chose the one with unknown repercussion.

That the Cypriot state is facing a serious an immediate liquidity crisis was known for a while. Most analysts who saw the first package of measures realised that they were mainly measures to aid the reduction of the structural deficit in the future and less about raising finances for the present. The new package of measures was expected to introduce deep cuts to government expenditure and increased revenues through taxation in order to alleviate the short term issues of liquidity for the government.

The news of the Republic of Cyprus borrowing 2.5 billion from the Russian Federation is instead a much more worrying development. Although the amount sounds small by global standards it is huge by Cyprus standards as it represents about 25% of yearly Government expenditure. The deal is for five years at a high (4.5%) but sustainable interest rate.

The concern is twofold:
1) This will reduce the pressure on the government to introduce very unpopular reforms that need to be addressed.
2) Such a huge aid package offered directly from the Russian Government is not given without giving something back. In choosing between the very bad decision to resort to the EU support mechanism (the DEVIL we know), we instead chose the one with unknown consequences - both in our economic and political sovereignty.

The DEVIL we do not know might in the end compromise our national sovereignty in more significant ways that resorting to the EU support mechanism. The EU support mechanism shows a way out and offers a return to fiscal policy sovereignty in recovery; a loan by a government keen to influence EU decisions by proxy can be an open ended commitment.

We must avoid such open ended commitments just because we panic about the present; The lesson of Dr. Faustus, who sold his soul to the devil in order not to die, but lived perpetually in damnation, should make us cautious in making open ended borrowing commitments in order to avoid making hard decisions now.

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By Pandelis on September 07, 2011

Για τις οικονομικές προβλέψεις...

Στις θετικές επιστήμες (μαθηματικά, φυσική, κλπ) μπορείς να διατυπώσεις εκ του ασφαλούς αρχές που ισχύουν πάντοτε, πχ ο Νόμος της Βαρήτητας - αν αφήσεις το μήλο αυτό θα πέσει χάμω... Στις κοινωνικές όμως επιστήμες (ψυχολογία, οικονομικά, πολιτικά, κλπ) ότι "νόμους" αναφέρουν τα βιβλία φέτος θα τους κατρρίψουν τα βιβλία που θα βγούν σε λίγα χρόνια... Ο λόγος? η ανθρώπινη συμπεριφορά... Aπλά, δεν μπορεί να προβλεφτεί, ούτε σε ατομικό ούτε σε συλλογικό επίπεδο... Πχ αν αυξήσεις το εισόδημα των ανθρώπων, μπορεί να αυξηθεί είτε η κατανάλωση, είτε η αποταμίευση ή ακόμα και το χρέος τους... Δηλαδή, στην περίπτωση των ανθρώπων, το μήλο μπορεί να πέσει χάμω, να πάει διαγώνια ή ακόμα και να πετάξει στο υπερπέραν... Στην Κύπρο, μάλλον θα βρεθεί και σε άλλη διάσταση...

By Alexander Apostolides on September 03, 2011

In praise of the New Cypriot Minister of Finance

After the slow departure of the Cyprus cabinet in the beginning of the month many names were suggested for the position of minister of finance, Until Mr. Kazamias was chosen.

I have to say that I originally thought the choice was a unknown and hence not what one would needs in grave times like these. However I withheld judgement since Mr Kazamias has the support of the respected fellow blogger Professor Panikos Georgiades, who gave a shining reference on his personality, astuteness and character.

The Minister has surpassed all expectations in his first month of office. He has repaired the relationship between the minister of finance and the governor of the central bank, and has brought a spirit of co-operation with the opposition parties, allowing a very swift passing of economic measures that the previous Minister of finance argued they were not possible - even arguing that such measures were not even necessary.

The minister has quickly and without fanfare rescinded decisions of the previous minister that did great damage to the Cypriot Credit Rating. It gave the handling of the government debt back to the central bank, thus reversing one of the most damaging decisions of the previous minister. He has talked bravely of tough changes and managed to haggle something out of the strong unions without ruining his relationship with them... relationship that is crucial in his attempt of passing further measures of budget restrictions.

The success of the new minister makes the previous "do nothing" approach of the Mr. Stravarkis look very poor in comparison. Mr. Kazamias seems capable in providing strong leadership and in promoting the spirit of co-operation that would allow for drastic changes to tackle structural problems of the government budget and i wish him all the best.


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