By Alexander Apostolides on December 20, 2012

My article on Guardian: A strongly worded critique of the Presidency of Demetris Christofias


I was asked to comment on the "Comment is Free" section of the Guardian on the public address of Demetris Christofias claiming that the whole issue of Cyprus is due to the banks and their failings.
Although I fully agree that long term issues of governance and the cosy nexus of bankers, politicians and the economic elite are part of the problem, this president has much to answer for how fast we ended up in this mess. My article in the Guardian is focusing exactly on this.

Great news! The peace review article we co-authored is available on-line!


My father and mother have been a great influence in my life. My mother gave me the strength of character to fight, and my father the belief that through hard work life could be better for all in the future.

My father has worked in his own way tirelessly for the solution of the Cyprus problem for over 20 years. With no grand standing or show boating, Costas Apostolides has worked to bring peace in Cyprus, earning the respect from those Turkish Cypriot and Greek  Cypriot communities whose opinions on the Cyprus issue are not clouded by racism, hatred, or political expediency.

I would sometimes resent my father missing late nights working on the Cyprus issue while growing up, but by the time I reached university I started learning about the economics of a solution, and was intrigued. By the time I finished my PhD I was fully convinced by fathers argument that a solution is affordable and a "win-win" situation for all Cypriots that would also serve as a beacon of hope and progress for the Near East as a whole.

The past three years I was lucky to be involved in a UNDP-ACT funded project implemented by the Cyprus Chamber of Commerce and Industry, and the Turkish Cypriot Chamber of Commerce called "Economic Interdependence In Cyprus". I came in as a late member to the Peace Economics Consortium (PEC), an inter-communal entity that sought to bring together economists across the divide to work on common issues of economic interdependence. I learned so much by all, but especially from the Turkish Cypriot members, who gave me such a great understanding of the desires and aspirations as well as the problems of the community.

Eight reports were submitted, with the summary of the first being published by the UNDP. However some of the authors felt that a wider publication of the results were needed. As a result the parts written by Costas Apostolides, Erdal Guryay and my self (Alexander Apostolides) were extesivly reworked and submitted for a special issue of the Peace Review, which asked if a solution of Cyprus was possible.

Our take is positive: If you look at the economic interdependence rather than the politics there has been great progress, which proves the two communities can live together peacefully and prosper under a solution. More work is being done on this as we speak, which we hope to publish in the medium term: But the news are overall positive.

By Alexander Apostolides on December 17, 2012

The great liquidity crunch is starting to bite – Liberalise contract law and the financial market now!



 Until recently it was thought that the crisis in southern Europe largely affected only small and medium size enterprises: yet as the deadline for bank capitalisation of the ECB moves ever closer, the economy is feeling the crunch of the resulting restriction of credit. In Greece several medium enterprises, thought by many to be viable concerns, could not find the short term finance to survive. In Cyprus the largest supermarket chain (in terms of stores) is in dire straits as banks seem unwilling to bankroll it.

Economics warns that money supply is really created by the banks and not so much by the central bank: Banks receive deposits or capital, which does not receive any interest and hence it needs to be loaned out. In their efforts to make a profit they lend most of that to others, essentially expanding the money supply. As the money supply is linked directly with the GDP an expansion of the money supply can lead to an increase in income; a reduction will always certainly lead to a decrease in the nominal GDP and increase unemployment further.

The economist seems to be relatively optimistic that the retraction of banking will provide alternative ways for large and small businesses to receive financing. It argues that large and solvent companies can issue their own paper that would be eagerly bought by investors eager for safe interest bearing assets, while small companies can trade their invoices in a secondary invoice market in order to receive more liquidity.

Sadly neither of the two is possible in Southern Europe. The first obstacle is physiological. As the economic depression in the Southern Europe deepens, investors will be unwilling to raise debt for profitable and respectable large companies, as the companies’ future is certainly going to be affected by further decline in sales in southern Europe, and the general increase in taxation.

More worryingly the idea of lending in Europe was tied to the idea of banking. As a result contact law and bidding law has centred on banks and their specific provision of auxiliary banking services. For example companies are frequently asked for a bank guarantee (that proves the company’s solvency) as part of the bidding process, effectively tying up the company’s financing with the banking sector. However as banks seek to restrict their exposures there have been cases were they request that amount that the guarantee suggests should be tied in the bank until the results of the bidding process have been completed, which could take six to twelve months. The bank effectively holds your money without you having access to it until you have won the contract, effectively starving small companies the ability to compete in an EU wide level to survive.

How can this change? the legal framework is outdated and prevents innovation in financing. It is not clear if a third party has the right to claim an invoice without having significant restrictions and regulation that make the whole process too costly. The answer is clear: a liquidity shortage is inevitable: yet quickly deregulating the financial market and the laws relating to everyday business finance could help alleviate the gap. Sadly this is so far off the agenda it is not even discussed in the southern Europe. 

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By Alexander Apostolides on December 07, 2012

An alternative Neo classical solution to Europe’s Banking Crisis: Universal Default.



I am constantly amazed with the indignant way politicians and media claim that the deflationary and austere measures demanded by the “Troika” consortium are the epitome of “Neo-liberalism”. It is true that some policy-makers have decided that these measures should continue, despite failing to revive the economies (Ireland, Greece, Portugal) that are in trouble. There seems to be the idea that the lack of recovery is due to a lack of sufficient reduction of the price level, and as such they demand ever more austerity and wage and price falls as a method to restore competitiveness of the ailing economies. The result is a downward spiral of GDP disposable income and people in employment, and a weakening of the critical sector for the economy: Banking.

The issue is that idea that just more austerity works is as weakly based on economic principles as most other suggestions heard in the last three years – rather than being “Neo-liberal” and sticking to the Neo classical paradigm of economics, the policy-makers in favour of these ideas choose a pick and mix approach, that totally discredits their efforts. It is not “neo-liberal” economics: it is bad economics, as it violates one of the first principles set by Lucas for modern Macroeconomics: it should be based on solid microeconomic foundations (i.e. it should anticipate the reaction of each individual agent to changes in incentives).

Let look at the three major suggestions of the “Troika” consortium: Government should reduce expenditure, labour laws and prices should be liberalised and fall in order to restore competitiveness, and banks should increase their capital in order to be immune to the effects of a declining economy. Government should borrow to help the banks directly by providing cheap credit/support.  

Yet Neo classical economics has for decades proven that the combination of these three policies would be catastrophic. Irving Fischer wrote a paper in Econometrica in 1933 that proved that such a combination of policies is catastrophic. Although there are other reasons why the above policies are ruinous (which will be subject of latter articles) here we will focus on Fisher’s understanding of the problem and his solution: the real cost of debt and the idea of universal default.

Fischer pointed out that even if prices and wages are flexible and can fall, contracts written in the past are not. Some of the most rigid (and long term) contracts are loans to firms and individuals; although banks can change the interest they charge in most deposits (and face the risk of losing clients), debtors do not have the right to change the interest they get charged.

For Fischer a severe downturn can bring a reduction of prices and wages in an economy, leading to a dramatic increase in the real cost of an existing loan agreement. For example if I bought a house and I used 10% of my past salary to repay the mortgage, the reduction in prices and wages would mean now I have to spend 20% of my current salary to repay that loan. The house is now probably worth less than what I bought it for (and hence I am repaying a loan for more than its current value) and I need to sacrifice more of my shirking income to pay for it.

What are the implications of the above example? If I keep paying the mortgage then there is a large redistribution of wealth from the owner to the bank: the bank is gaining from the lower price level and thus the real interest rate it receives increases. If I stop paying, the bank will go bankrupt: forcefully getting my asset (the house) will not help the bank as the fire-sales of devaluated assets lead to the asset selling for a very low value.

What is Fischer’s policy advice: universal default! Fischer argues that all institutions and agents acknowledge that past contracts are unworkable and universally default and renegotiate to take account of the new wage and price level. Neo classically this idea is ideologically sound and it can be perhaps best explained with a joke:

It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism.

Now some will argue that:
a)      Greece and Southern Europe have not seen deflation as measured by the Consumer Price Index (CPI)
b)      As loans as now estimated as a basis points above the ECB base rate, interest payment are flexible and thus there is no need to renegotiate contracts – interest payments of individuals will fall as their wages decline.
I argue that a) is false and b) is theoretically correct but stopped by the Troika measures.

In regards to a), although the CPI of Southern European countries is positive, this is mainly due to the effects on inflation though tax increases raising prices – thus a CPI minus tax increases is close to being deflationary. There is no doubt that the purchasing power of the average Southern European is falling rapidly and this is accepted even by the “Troika” consortium; they argue it is just not falling fast enough.  

As for b), the ECB interest rate is low but as banks are scrambling to gain capital and other secure assets, we do not see a decrease in the interest rate of lending to individuals; if anything we see interest rates to individuals remain at the same levels, while total lending is being dramatically reduced. But this is mainly is due to the policy of increasing banking solvency at a time of lean economic times, a policy agreed by some of the same policy makers which argue for increased austerity. Currently banks borrow from the ECB cheaply and lend to governments less cheaply, while no one is really helping those who defaulted on their loans: Fischer’s idea provides and alternative view, were homeowners and banks reach settlements through a defaults that is across the board.  I suspect the reason Fischer’s alternative idea is not even discussed has more to do with politics and interest groups rather than with economics.

Despite the fact that I think many of the ideas of the “Troika” consortium are rubbish, I do not believe the economic ideas as expounded by SYRIZA can work. Those who accuse the “Neo liberal” policies and provide alternative heterox views also have a poor foundation in economic theory. As a result an implementation of such views will result to unpredictable and disastrous results. The “Troika” policy makers should stop hiding behind economics: the Neo classical worldview is incredibly mixed and varied, and offers alternative ways out of the current crisis which are not discussed due to political rather than economic considerations.

My thanks to Econtalk for the Fischer Article, and Demetris Halios who first asked me about the paradox hidden in the joke,  and the girl in Cave bar who asked me why does the bailout of Cyprus go to the homeowners rather than to the banks.--------------------------------------------------------------------------------------------------- Licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. . You are free to copy content but you must link back to this blog and attribute the work to me (Alexandros Apostolides).. You cannot use my work for commercial purposes and you must share it under the same terms I do.

By Alexander Apostolides on December 06, 2012

Prices, Hurricanes and Rationing: Why prohibiting price increases can be a bad thing.


A petrol station on Staten Island after the Hurricane: Courtesy ITN 


Just as the Presidential Campaign was entering its final stages in the US, hurricane Sandy ripped through the west coast, creating extensive damage to the East coast. Republican New Jersey Governor Chris Christie was praised for his work both before and during the hurricane, as well as his close collaboration with the Democratic President Obama in the midst of elections.

The governor has stated publicly even before the hurricane made landfall that anti-gouging laws will be enforced to their fullest.  What are anti-gouging laws? They are laws that state that no business can take advantage of an emergency to charge higher prices for its product than it did before the emergency.  In fact the governor acted on his statement, sending lawsuits against many businesses that increased their prices, including petrol stations and other vendors of what were deemed essential goods.
But are such laws a correct way of tackling issues that arise from an emergency? What Governor Chris Christie and other politicians seem to forget is that a cap on prices does not ensure sufficient quantity: it ensures a deficit of products, causing additional hardship and social unfairness.  Let us take the case of petrol as an example. There is no doubt that the Hurricane created a Demand shock (sudden increase of the quantity demanded) and a supply shock (a sudden reduction in the ability to provide additional petrol). As a result the market clearing price would have to rise at substantially higher levels than previously. A price of 25 dollars a litre would not be unthinkable in such conditions. People used to paying less for petrol would be upset and demand action.

The governors of New York and New Jersey decided to enforce laws against rising of prices in an effort to make sure the people had petrol. The result was disastrous: there was a prolonged shortage of petrol in all New Jersey for substantial time after the hurricane hit; strategic reserves were released that did not alleviate the petrol deficit. Since there could not be a significant increase in prices the result was incredibly predictable: mass shortages, long queues and general unpleasantness.  

As a result of the anti-gouging laws there was no incentive for the petrol station owners to bring in more petrol; consumers on the other hand would not just buy how much they need but they would hoard, knowing that the price was lower that it should have been and that there was uncertainty of future supply. The governor of New Jersey tried to stop the selfish desire to hoard by rationing the available gas. New York decided to give gas for free and found itself overwhelmed by the people who wanted it. The intuition missed by the Governors of New Jersey and New York is serious and happens often by politicians – you just cannot use the price mechanism to introduce social values.

Economics has evolved its understanding of markets to form a general system for an economy, using general equilibrium analysis. The intuition is that consumers adjust to the changes of prices between goods; these price changes will allow the consumers and suppliers to make the best choice for them, but that choice will also lead to a socially efficient outcome. Thus allowing price of petrol to rise to $25 would achieve the aim the governors of New York and New Jersey found difficult to tackle: Consumers would self-ration, since they would be unwilling to spend so much of their budget on petrol and only take as much as they needed. Suppliers would bend over backwards to re-establish the networks that would supply them with more gas, rapidly reducing the price for petrol.

Does that mean that Governors should let consumers suffer in the hands of what are perceived as opportunists? There is an efficient way of alleviating the situation: but it is not through the price mechanism. It is through changing who owns the supply of petrol. An economist would not enforce the anti-gouging laws, but he would provide one litre of gas to each citizen and give them the right to buy and sell it as they chose. The result would be that consumers who wanted gas would buy it from those who did not want it, putting pressure of petrol station owners to lower their prices to the lowest possible. Social fairness has to be addressed through the re-distribution and the increase of competition and not though enforcing price law edicts.

My thanks to Econtalk which inspired this article, and my ECO 310 students who challenged me to find a theoretically robust way to stop gouging.
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By Alexander Apostolides on November 08, 2012

Great Market for Lemons Game: Worked Wonders in Class


So I ended up teaching a micro course and wanted to do something different. The "Market for Lemons" by George Akerlof, which explains how information asymmetry between the consumer and the producer is a hard concept for students to get.

It suggests that if sellers know more information by consumers (such in the purchase of second hard cars for example) then the quality in the market will be poor (not allocative efficient) and the consumers will only be willing to buy with a massive discount, hurting both buyers and suppliers.

To teach it I tried the game created by Charles A. Holt and Roger Sherman in Journal of Economic Perspectives, Winter 1999. It was a great success!
I used groups of 3 sellers and 4 buyers as suggested - to make more sellers and buyers will take too long.
With only minimal coaching, the students under full information in the market (i.e. both sellers and buyers had full knowledge) reached the allocativevly efficient quality grade and very close in reaching the equilibrium price in the market.

Then information on quality was withheld as suggested and after the buyers were ripped off in the first term, the quality grade dropped to the less efficient grade 1 and prices radical started declining.

I tried to pair up the stronger students with the weaker ones because if you loose the weak ones they start randomly guessing rather than trying to make money - so a bit more coaching (on a one to one basis) that what is suggested by Holt and Sherman was needed. Try and split up your strong students between the buyers and sellers and see them thrive in this game!

The appointment of representatives was an amazing success. The seller representative went first and called for consumer  protection if they were miss-sold a grade of car that was poorer than what was advertised, to the shock of the buyer representative, who was about to argue the same thing.

Try it - worked so much better than a boring lecture....

A great post on Nep-His Blog on tax on private business


I really like the economic business and financial history blog for the diverse people who post and the topics they introduce. They are quite good in finding historical research that links to current debates.
Their latest find is on the historical evidence of taxation and the affect on corporations, a topic that was hotly debated even the the recent US elections. It is a hotly debated topic in Cyprus and Malta as well, and one of the key "red lines" that the government of Cyprus is not willing to cross vis a vis the "troika" negotiations.
It is important to see that although the issue is not as simple as corporations argue, it is an issue as taxation does reduce incidences of corporation, and hence make growing a business harder.

By Alexander Apostolides on November 03, 2012

My best interview yet: Great to present views in Istanbul Radio


While in the 2012 PRIO conference I was so glad to meet to meet Ekrem Eddy Guzeldere, a very sharp political analyst from Turkey. He is organizing a radio show in Istanbul and invited me to interview on the Subject of the Current economic crisis in Cyprus and the current economic interdependence of the two communities.

Hear the interview here - Eddy really allowed for the conversation to flow and I think it is the best explanation of the current situation of Cyprus in both communities.   
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By Alexander Apostolides on October 27, 2012

Concluding remarks of Conference of the European Economic and Social Committee “Restoring stability, trust and confidence in Europe: civil society for a new form of governance” 16th of October 2012

A great conference by the EESC in Cyprus, which was sadly poorly attended. I was given the honour to close the conference and took the chance to talk about both the issue of the day (CSO as a way to increase accountability in Europe's decision making).

Here is the summary report.  In belief of Creative Commons, I have decided to post their presentations online. But remember, using them as your own is plagiarism, and theft - ask me or cite me!

Civil society and accountability in Cyprus. Position in Europe and Abroad

I was invited to be part of a panel on governance in Cyprus in the 2012 PRIO conference in Cyprus. It was a very good panel with lively conversation.  I got very good feedback for a new research project in term of transparency in CSOs. My presentation was on the civil society organizations (CSO) in Cyprus in response to the desire of the Cyprus presidency to push for greater CSO participation in Europe. In short: the republic of Cyprus should do at home what it preaches abroad.  

Here is the presentation. In belief of Creative Commons, I have decided to post their presentations online. But remember, using them as your own is plagiarism, and theft - ask me or cite me!

The 1931 October crisis and the great depression: Japan Presentation

Following from my conviction for the open source ideal here is the presentation I did for the first Asian Economic History Conference that was hosted by the Hitotsubashi University in early September. The conference was one of the best I ever attended and the presentations were of top quality.

The comments allowed me to make great progress. I just wish i had time to push these ideas further.
Here is the presentation. n belief of Creative commons, i have decided to post their presentations online. But remember, using them as your own is plagiarism, and theft - ask me or cite me!

Powerpoint on support of Erasmus: Why the single market works especially for youth


This was a powerpoint that i had ready for the commemoration of the single market and the Erasmus programme on the 12th of October. Sadly I woke up with no voice and missed it, since I really wanted to both show why the Single market works as the idea of the EU is under threat. I have also participated in Erasmus and I am a great  supporter of the project, which now has its funds viciously cut.

Here is the presentation, not given due to my lack of voice!

In belief of Creative commons, i have decided to post their presentations online. But remember, using them as your own is plagiarism, and theft - ask me or cite me!

By Alexander Apostolides on October 25, 2012

Krugman appreciates economic history


Another excellent post on how 1930 multipliers are almost identical to current IMF estimates  suggesting a little stimulus perhaps mixed with some inflation will not hurt. I am less sure of this as a policy in southern Europe, were the governance system needs an overhaul in order to make stimulus effective, but glad to see Krugman inappropriate the research of economic historians.

It also speaks wonders for Demetriades, the Governor of the Cypriot Central bank, who is battling the IMF on arguing that the multiplier of fiscal spending cuts will not be 0.4 as the IMF suggests (which is insanely low, leading us to an underestimation of the GDP fall, but closer to 1.4. That is a battle of technicalities that can have such wide reprecussions that it is worth fighting for: well done to Dr. Demetriades for making a stand, and for using own IMF research to fight the low multiplier with.

By Alexander Apostolides on October 15, 2012

The last and most colourful "larger than their country" Leaders is dead: King (Prince) Shianouk



Decolonization brought forth an era of leaders who held their own citizens in a not so democratic “hero worship” and who could capitalise on the cold war by projecting greater power than they really had. The non aligned movement in the 1960s was exactly the personification of such larger than life characters, each of them having the ability though the combination of their colourful personalities, their willingness to flirt with both superpowers and their hero worship at home linked to decolonization.

 Makarios of Cyprus was one them: there are people who might not know where Cyprus is but they know Makarios.

The last and most wily just past away today, managing to cheat death up until today. You could never pin King Sihanouk down: was he a plaything of the west, a die hard communist Khmer Rouge, a playboy, or an extravagant leader who wasted his countries resources on grand movies while the Vietnam war was spilling over in Cambodia? The
 truth is that he was all of the above and none of the above at the same time.

Trained by France he was diplomatic enough to accept Japan's terms during the Second World War while not looking like an enemy of the victorious allies. He brought independence to Cambodia while remaining an ally of France, and he undermined democracy by becoming prince for life while bringing the first elections.

He brought in China and North Vietnam in the country after huge pressure to create alternative supplies to the Vietnam conflict. Instead of building an army to fend off a conflict he spent significant time on his hobbies of directing films and jazz.

He made Hollywood type movies in Cambodia about the glorious past of his lineage while people where in dire living conditions. He made a city after his name. At the same time although basking in privilege and extravagance he made public announcements of the greatness of Maoism (remember Makario's a head of an Autokefalous Church, claiming to be a socialist?). Prince Shianouk increased the influence with China while suppressing the left in his country and while he was still part of the French alliance! He claimed that that was the only way his country could stay out of the increasingly brutal and globalized Vietnam War that was raging all around Cambodia.

Expelled and replaced by a pro west regime, the fate of Cambodia as a brutal side show of the Vietnam was ensured.

Bitter, Prince Sihanouk supported the Khmer Rouge, the most brutally genocidal regime, and was critical in their early success in recruiting fighters. Meanwhile he was living in a palace build to him in North Korea in isolation but in extreme decadence, having jazz parties and watching the movies he created. He entered with the Khmer victorious, only to stand helpless as the Khmer launched a policy of mass extinction and death of over 1.7 million dead Cambodeans. Prince Sihanouk never blamed himself for this tragedy he helped create and would work with the Khmer again to allow him to wield influence.

 His desire to be on the centre stage meant that being a glorified pawn of the communist Khmer Rouge was not going last. He was quickly deposed from all ceremonial dues and was not shot due to his global presence, and he sought refuge in China and North Korea. Despite that he was instrumental in maintaining Khmer Rouge power in the UN after they were expelled from the country by Vietnam and became financially supported by the USA who wanted to contain Vietnamese expansion.

He was brought back as a ceremonial head in 1992 when the Khmer guerrillas were effectively defeated diplomatically. In another turn he then created a party that supported in a coalition the Vietnam backed leader of the party Hun Sen. Yet he chose to abdicate in 2004 as he felt his given the role was too restrictive under the autocracy and new “hero worship” created towards the true leader of Cambodia, Hun Sen. He once more caused a storm as there was no abdication procedure in the fragile constitution created after the peace agreements.

 Here they are all leaders of the decolonised world, the last of them meeting them in death.

 Photograph caption:

BELGRADE, YUGOSLAVIA: Delegations' chiefs pose 05 September 1961 at the end of the conference of the unaligned countries in Belgrade. (Fron R to L: Josip Broz Tito (1892 - 1980), president of Yugoslavia, Prince Hassan ibn Yahya (1908 - 2003), permanent representative of Yemen in the UN, Prince Norodom Sihanouk of Cambodia, Saeb Salam (1905 - 2000), Premier of Lebanon, Aden Abdullah Osman Daar, president of Somalia, Ibrahim Abboud (1900 - 1983), president of Sudan, Sheikh Ibrahim Suwaiyel, minister of Foreign Affairs of Saudi Arabia, Archbishop Makarios (1913 - 1977), president of Cyprus, King Hassan II of Morocco (1929 - 1999), Sirimavo Bandaranaike (1916 - 2000), Premier of Ceylon, Habib Bourguiba (1903 - 2000), president of Tunisia, Ahmed Sukarno (1901 - 1970), president of Indonesia, Osvaldo Dorticos Torrado (1919 - 1983), president of Cuba, Kwame Nkrumah (1909 - 1972), president of Ghana, Gamal Abdel Nasser (1918 - 1970), president of the United Arab Republic of Egypt, Emperor Haile Selassie I of Ethiopia (1891 - 1975), Sardar Mohammad Daud Khan (1909 - 1978), Premier of Afghanistan, Modibo Keita (1915 - 1977), president of Mali, Jawaharlal Nehru (1889 - 1964), Premier of India, Hashim Jawad (1911 - 1972), Minister of Foreign Affairs of Iraq, King Mahendra Bir Bikram of Nepal (1920 - 1972), Youssef ben Khedda (1920 - 2003), president of the provisional Algerian government, Louis Lansana Beavogui (1923 - 1984), Minister of Foreign Affairs of Guinea, Cyrille Adoula (1921 - 1978), Premier of the government of Democratic Republic of Congo, Antoine Gizenga, vice-president of the government of the Democratic Republic of Congo, U Nu (1907 - 1995), premier of Burma). AFP PHOTO (Photo credit should read AFP/Getty Images)


By Alexander Apostolides on October 14, 2012

An exceptionally good article by George Prokopis Advising Cyprus to accept the IMF proposals

What has been missing from all the analysis of the IMF plan an government counter proposals is a serious and deep analysis regards to other bailout plans.
Up to now Greece is seen as what could happen to Cyprus - but Greeks see the situation correctly and argue that Cyprus can still have viable debt and hence should get the loan and as soon as possible.

The best comment of the article below is the complete lack of economic rationality on receiving a Russian loan: even if it was given, as the interest would be at 5% rather than 1.8% of the Troika: then the deficit reduction measures should be at least 20% more severe.

Bravo Politis: it has been a while since you had a good economics article!

 Τρέξε Κύπρος, τρέξε! του Γιώργου Προκοπάκη Γιώργος Προκοπάκης, γράφει σήμερα αποκλειστικά για τα «Αυτονόητα» του Πολίτη.

 Η Κύπρος, με το σχέδιο του Μνημονίου πάνω στο τραπέζι, βρίσκεται μπροστά σε μια κρίσιμη επιλογή: πώς θα διαχειρισθεί τα προβλήματα που έχουν ανακύψει από την κρίση. Πρέπει πρώτα απ’ όλα να γίνει κατανοητό ποιά είναι τα χαρακτηριστικά του προβλήματος. Ελλοχεύει ο κίνδυνος της μεταφοράς στο νησί της διελκυστίνδας για το ελληνικό Μνημόνιο – ιδεολογικά φορτισμένης και αδιέξοδης.

Η έξοδος από την κρίση σε καμιά περίπτωση δεν θα είναι μια ευχάριστη βόλτα στο πάρκο. Δεν υπάρχουν εύκολες ή μαγικές λύσεις. Απαιτείται διαχειριστική ικανότητα, αποφασιστικότητα, σκληρή δουλειά και πάνω απ’ όλα το χτίσιμο της ευρύτερης δυνατής κοινωνικής συναίνεσης. Αναγκαία προϋπόθεση είναι η ειλικρίνεια, η δίκαιη κατανομή των βαρών στην κοινωνία και η προστασία των πολιτών που πλήττονται βαρύτερα.

Το πρόβλημα 

Το κυπριακό πρόβλημα, αντίθετα με το ελληνικό το οποίο είναι πρόβλημα βιωσιμότητας τους χρέους (solvency), είναι πρόβλημα ρευστότητας (liquidity). Ο διατραπεζικός δανεισμός σε όλη την Ευρώπη έχει πρακτικά πεθάνει εδώ και τρία χρόνια – μαζί του και πολλές αγορές κρατικού χρέους. Για τις ελλειμματικές οικονομίες, η ασφυξία ήταν ζήτημα χρόνου. Η έκθεση των κυπριακών τραπεζών στα ελληνικά ομόλογα και τα επισφαλή δάνεια - που όλοι ήξεραν αλλά όλοι είναι έκπληκτοι σήμερα – επιτάχυναν ίσως την εμφάνιση του προβλήματος. Η έκρηξη των πυρομαχικών και οι επιπτώσεις της στην οικονομία εξανέμισαν κάθε ελπίδα διαχείρισης αναβάλλοντας αποφάσεις, σπρώχνοντας τα προβλήματα κάτω από το χαλί. Η ρητορική που χρεώνει τα πάντα στις τράπεζες και τους τραπεζίτες, ακόμη και εάν δεχθούμε ότι σωστά βάζει το δάχτυλο στο ένα και μοναδικό πρόβλημα, δεν προσφέρει καμία διέξοδο. Μια ελλειμματική οικονομία είναι υποχρεωμένη να δανείζεται για να καλύπτει το έλλειμμα και να αναχρηματοδοτεί το χρέος της – αλλιώς χρεοκοπεί.

 Το πρόβλημα των 2 ή 3 δισ € των τραπεζών είναι προσδιορισμένο και περιορισμένο. Έκπληκτοι οι πολίτες μαθαίνουν προ μερικών μηνών πως το (μικρό, ας πούμε) πρόβλημα των τραπεζών χρήζει θεραπείας με δανειακή σύμβαση και Μνημόνιο πολυ-πολλαπλάσιου μεγέθους. Αναρωτιούνται «πώς μπορεί να συμβαίνει αυτό μετά το ρωσικό δάνειο; – διάολε όσο είναι το τραπεζικό πρόβλημα δανειστήκαμε από τον Πούτιν». Δυστυχώς, για όσο χρονικό διάστημα η χώρα δεν μπορεί να δανείζεται από τις επάρατες αγορές, κάποιος πρέπει να της καλύπτει τα ελλείμματα και να πληρώνει τις λήξεις των δανείων. Η χώρα εκτός από χρήματα έχει ανάγκη από ένα πρόγραμμα προσαρμογής.

Ένα πρόγραμμα που θα μειώσει τα ελλείμματα – άρα δεν θα αυξάνει το χρέος – και θα επιτρέψει στη χώρα να ξαναβγεί αυτόνομα στις αγορές να αναχρηματοδοτεί το χρέος της. Το πρόγραμμα αυτό ή θα το αποφασίσουν οι Κύπριοι μόνοι τους ή θα το επιβάλλουν οι δανειστές. Υπάρχει βέβαια και τρίτη επιλογή: δανεισμός (αν υπάρχει πρόθυμος δανειστής) χωρίς προσαρμογή – η βέβαιη καταστροφή μετά από κάμποσο καιρό!

Οι επιλογές 

Για να γίνουν κατανοητές οι επιλογές, ας επιχειρήσουμε να ποσοτικοποιήσουμε ένα μέρος του ζητήματος. Η Ελλάδα με το δεύτερο μνημόνιό της δανείζεται από την τρόικα με επιτόκιο κάπου 1.8%. Η Κύπρος δανείζεται διακρατικά και με βραχυχρόνιο εσωτερικό δανεισμό (τράπεζες) με επιτόκιο τουλάχιστον 5%. Για το ευτελές ποσόν των 5 δισ €, η διαφορά του επιτοκίου βαρύνει τα δημόσια οικονομικά της Κύπρου με πρόσθετες δαπάνες για τόκους περίπου 180 εκατ € ετησίως.

Περίπου το 20% της ετήσιας προσαρμογής που ζητάει η τρόικα με το σχέδιο του Μνημονίου. Αυτό πολύ απλά σημαίνει πως, εάν η κυπριακή κυβέρνηση έχει εναλλακτική πηγή δανεισμού και είναι αποφασισμένη να συμμαζέψει την οικονομία, το δικό της πρόγραμμα πρέπει να είναι κατά 20% πιο σφιχτό για να έχει το ίδιο αποτέλεσμα!

 Στο σχέδιο Μνημονίου που της προτάθηκε, η κυπριακή κυβέρνηση απάντησε με το δικό της Μνημόνιο. Η κυπριακή αντιπρόταση (μεγαλύτερης διάρκειας, οπισθοβαρές) φαινομενικά επιδιώκει ήπια προσαρμογή. Τα ζητήματα αποτελεσματικότητας των μέτρων της αντιπρότασης, ιδίως στο πρώτο μισό του προγράμματος θα τεθούν υποχρεωτικά. Είναι προφανές πως ένα μέτρο βέβαιης αποτελεσματικότητας νωρίς στο πρόγραμμα «συσσωρεύει» δημοσιονομικό όφελος καθ’ όλη τη διάρκεια του προγράμματος.

Η αντικατάστασή του με μέτρα μικρότερης απόδοσης και αβέβαιης αποτελεσματικότητας είναι βέβαιον πως είτε θα οδηγήσει το πλοίο στα βράχια είτε θα απαιτήσει πολύ μεγαλύτερου κοινωνικού κόστους μέτρα αργότερα. Ένα πραγματικό πρόβλημα δεν λύνεται με λογιστικά τερτίπια. Η σημασία της ταχύτητας

Να θυμίσω την ιστορία με τα προβλήματα του Καναδά πριν 15 περίπου χρόνια. Εφαρμόσθηκε μια προσέγγιση που αργότερα ονομάσθηκε «αναπτυξιακή λιτότητα». Βασικό χαρακτηριστικό: άμεση λήψηόλων των μέτρων και απαρέγκλιτη εφαρμογή τους. Προφανώς χτυπήθηκαν νοικοκυριά – κάποια βάρβαρα. Προφανώς χτυπήθηκαν επιχειρήσεις – κάποιες έκλεισαν. Όμως το πλαίσιο ήταν καθαρό από μιας αρχής, για την οικονομία της χώρας, τους επενδυτές και τους δανειστές, και σε έξι μήνες τα πράγματα ομαλοποιήθηκαν.

Η Κύπρος είναι μια μικρή οικονομία. Το ΑΕΠ της χώρας είναι μικρότερο από το ελληνικό πρωτογενές έλλειμμα του 2009! Το πρόβλημά της είναι περιορισμένο σε σύγκριση με το ελληνικό και κυρίως διαφορετικό. 

Θα είναι έγκλημα να αυτοκτονήσει η χώρα μεταφέροντας στο νησί μια ιδεολογική και εν πολλοίς άσχετη διαμάχη. Το συμφέρον του κυπριακού λαού είναι να βγει το συντομότερο δυνατόν από το πρόβλημα και όχι να το αφήσει να σέρνεται και να διογκώνεται. Η κυπριακή οικονομία στηρίζεται σε μεγάλο βαθμό στην τουριστική της βιομηχανία και το ρόλο της ως χρηματοπιστωτικού κέντρου.

Ακόμη και εάν υποθέσουμε πως ο τουρισμός παραμένει αιμοδότης της οικονομίας, η παράταση της αστάθειας είναι σχεδόν βέβαιο πως θα πλήξει, ανεπανόρθωτα ίσως, τον άλλο πυλώνα. Η «ήπια» προσαρμογή που σώζει μερικές εκατοντάδες θέσεις εργασίας στο δημόσιο, ή επιχειρεί να διατηρήσει την αυτόματη τιμαριθμική αναπροσαρμογή, βάζει σε κίνδυνο όλη την κυπριακή οικονομία.

Η παράταση της κρίσης είναι βέβαιο πως θα πλήξει κυρίως τη μεσαία τάξη. Αφ’ ενός λόγω της μείωσης του διαθέσιμου εισοδήματος, κυρίως όμως λόγω της κατάρρευσης των αξιών (π.χ., ακίνητα) και της υπερέκθεσης σε τραπεζικό δανεισμό. Αν συμβεί κάτι τέτοιο, το πρόβλημα και οι ουρές του θα ταλανίζουν την κυπριακή κοινωνία για πάρα πολλά χρόνια. Το συμφέρον της κυπριακής κοινωνίας είναι να προδιαγραφεί μια συνολική, ριζική και άμεση λύση. Μια κυπριακή αναπτυξιακή λιτότητα!

Αυτό σημαίνει τάχιστη παρέμβαση της Κεντρικής Τράπεζας και της ΕΚΤ στο ξεκαθάρισμα των προβλημάτων του τραπεζικού τομέα. Η ανακεφαλαιοποίηση των τραπεζών και η παροχή ρευστότητας, όσο κι αν χτυπάει στα αντικαπιταλιστικά αντανακλαστικά μας, είναι μέγιστη προτεραιότητα εάν η επιθυμία είναι η τάχιστη αναθέρμανση της οικονομίας. Στη διαδικασία αυτή μπορεί να συνεκτιμηθεί και το πρόβλημα υπερδανεισμού των πολιτών. Το πρόγραμμα προσαρμογής, ανεξαρτήτως πατρότητας, γίνεται όσο περισσότερο δυνατόν εμπροσθοβαρές.

 Καθήκον της πολιτικής ηγεσίας είναι να επιδείξει την απαιτούμενη γενναιότητα, να σταθεί πίσω από το πρόγραμμα και να κερδίσει την εμπιστοσύνη των πολιτών. Βέβαια, απαιτείται και κάτι ακόμη: μέχρις ότου ξαναπάρει μπροστά η οικονομία, να ελαχιστοποιήσει τις επιπτώσεις, ειδικά στους πιο αδύνατους πολίτες. Χωρίς πόρους και παρεμβάσεις δεν προστατεύεται κανείς Η προστασία των πληττομένων είναι το προσφιλές άλλοθι των πολιτικών για να μην κάνουν τίποτε. Είναι, θα πείτε, και όποιου προσπαθεί να «πουλήσει» αναπτυξιακές λιτότητες και άλλα τέτοια. Χωρίς πόρους και χωρίς παρεμβάσεις δεν προστατεύεται κανείς!

Ας βρούμε λοιπόν εκείνες τις παρεμβάσεις που κάτι μπορεί να κάνουν και τους πόρους που απαιτούνται. Πρώτα απ’ όλα, είναι αδιανόητο, σε περίοδο κρίσης ειδικά, το κοινωνικό κράτος να αναδιανέμει πόρους με «οριζόντια» κριτήρια (π.χ., πολύτεκνοι) και όχι εισοδηματικά. Είναι υποχρέωση της πολιτείας προς την κοινωνία να αλλάξει άμεσα τις αναδιανεμητικές προτεραιότητες του κοινωνικού κράτους. Είναι παράλογη η άμεση ή έμμεση επιδότηση επιχειρήσεων από κοινωνικούς πόρους όταν ο φορολογικός συντελεστής είναι 10%. Είναι παράλογη η ισότητα συμμετοχής στις ιατροφαρμακευτικές υπηρεσίες πλουσίων και φτωχών.

Οι πόροι που πάνε σε δράσεις ελάχιστης κοινωνικής αποτελεσματικότητας με τον φερετζέ της κοινωνικής πολιτικής είναι πολλοί. Πιθανότατα δεν φθάνουν όμως. Πιθανότατα δεν απαντούν και στα προβλήματα της μεσαίας τάξης. Ας βρούμε λοιπόν κι άλλους πόρους. Αν η προδιαγραφόμενη λύση είναι πειστική με μικρό ορίζοντα εφαρμογής των περιοριστικών μέτρων, ένα συστατικό της λύσης μπορεί να είναι η χρονική μετάθεση των ανελαστικών υποχρεώσεων των πολιτών – κυρίως των υποχρεώσεων προς χρηματοπιστωτικά ιδρύματα.

Οι δανειακοί διακανονισμοί με ελάφρυνση των υποχρεώσεων των οφειλετών για μια περίοδο τριών έως πέντε ετών, είναι εφικτοί και εν πολλοίς επιθυμητοί από τις ίδιες τις τράπεζες – έναντι του πολλαπλασιασμού των μη εξυπηρετουμένων δανείων και της κατάρρευσης αξιών, άρα και εγγυήσεων. Δεν είναι ζήτημα νομοθετικής ρύθμισης αλλά συναινετικής προσέγγισης στη διαδικασία ανακεφαλαιοποίησης. Συναινετική μεταξύ των τρόικας, ΕΚΤ, τραπεζών και κυβέρνησης.

Che fece,,, il gran rifiuto 

 Ας πάμε ακόμη παραπέρα. Ακούγεται συχνά για το ασφαλιστικό σύστημα η αυτομαστιγωτική φράση που χαϊδεύει αυτιά: «υποθηκεύουμε τις μελλοντικές γενεές». Αληθινή, αλλά άχρηστη εάν δεν συνοδευτεί από διορθωτικές δράσεις. Η κατάσταση είναι αρκετά κρίσιμη ώστε να αξίζει τον κόπο να εξετασθεί η εναλλακτική «να δανεισθούμε από τις μελλοντικές γενεές». Δανεισμός λελογισμένος, με διαφάνεια, με προσδιορισμένους στόχους και με ανάληψη υποχρέωσης εξώφλησης. Το κοίτασμα φυσικού αερίου είναι μια προίκα για τις μελλοντικές γενεές Κυπρίων.

Ακόμη και αυτές οι μελλοντικές γενεές θα είναι ευγνώμονες εάν μπορέσουν να απολαύσουν την «κληρονομιά» σε ανθηρές οικονομικές συνθήκες. Αφήστε που χρειάζεται και μια οικονομική ασφάλεια η κληρονομιά αυτή, την οποία μπορεί να παράσχει μόνο μια σταθερή οικονομική ανάπτυξη. Πού μπαίνει το φυσικό αέριο στη συζήτησή μας; Εάν η κυπριακή κοινωνία είναι αποφασισμένη να παλέψει για την γρήγορη ανόρθωσή της, για την προστασία του βιωτικού επιπέδου και των επιτευγμάτων 38 χρόνων υπό συνθήκες κάθε άλλο παρά εύκολες, μπορεί μέρος της αξίας που είναι κλεισμένη στο βάθος της Μεσογείου να χρησιμοποιηθεί ως εγγύηση για άντληση των συμπληρωματικών πόρων που θα σώσουν την παρτίδα και ολόκληρες κοινωνικές ομάδες από τη σύνθλιψη. Είναι μεγάλη και δύσκολη απόφαση.

Πρέπει να είναι το τελευταίο κομμάτι στο παζλ μιας λύσης, αφού όλες οι υπόλοιπες παρεμβάσεις έχουν ελαχιστοποιήσει τις ανάγκες. Αυτό που δεν πρέπει να γίνει με τίποτε είναι η εύκολη λύση, της ληστείας των επόμενων γενεών: να χρησιμοποιηθεί πρώτα (π.χ., εγγύηση σε νέες εκδόσεις χρέους) για να αποφευχθούν οι παρεμβάσεις και οι αλλαγές που είναι απαραίτητες. Απαιτείται γενναιότητα και αίσθημα ευθύνης από το πολιτικό προσωπικό. Η εναλλακτική όμως πρέπει να διερευνηθεί και τουλάχιστον να προσφερθεί προς κρίση στον κυπριακό λαό.

 Επιμύθιον

Δυστυχώς, τα δύσκολα προβλήματα δεν έχουν εύκολες λύσεις. Ο ρόλος του πολιτικού προσωπικού, επικειμένων μάλιστα των εκλογών, είναι σημαντικός. Ο κυπριακός λαός έχει δικαίωμα στην αλήθεια, στην κατάθεση των πραγματικών εναλλακτικών. Ο Τσώρτσιλ, ένας περιθωριακός και εν πολλοίς ανυπόληπτος πολιτικός, όταν του ανατέθηκε η διαχείριση του πολέμου πριν εβδομήντα τόσα χρόνια είπε στους συμπολίτες του: «σας υπόσχομαι αίμα, ιδρώτα και δάκρυα». Η Ευρώπη σώθηκε. Ο κυπριακός λαός είναι σίγουρο πως δεν γλυτώνει τον ιδρώτα. Το στοίχημα είναι να σωθεί η Κύπρος χωρίς τα άλλα δύο.

By Alexander Apostolides on October 12, 2012

Discussion turned into a debate - or the mistakes I made on live TV

On Thursday I wanted to talk about how to quickly make the government plan to the troika better. As I see it has 4 main flaws that I wanted to explain. 1) It does not include business cycles in taxation revenues and social expenditures, which would lead that we will commit to amounts that we will not be able to deliver, need new measures and new plans, spreading panic "ala Greece" 2) It postpones all issues of worth - structural reforms in the "future" through the use of "making reports on the issues" 3) There is no use of Greece's skills of does and don'ts - no understanding of best practise. 4) It ignored the ability to reduce co-sponsorship of EU funds (from 50/50 to EU 90/CY10) so that the real reduction in growth related expenditure is kept to a minimum. Lets explain this point: a) Lets say the government was giving 10 million for research and the EU topped it up by 10 million (co-sponsorship 50/50). i) Total Cyprus government budget cost 10m ii)Total expenditure for research 20m Now the government has to cut budget and cuts research from 10 million to 1 million. b)The problem is that for every 1 euro you take away you loose an additional euro from the EU funds. Why? i) New Total Cyprus government budget cost 1m ii)Total expenditure for research 2m Total reduction of expenditure 18m c) The solution is to ask the commission (and only the commission -= this is not a "troika" issue) to reduce the co-sponsorship level to 90/10. i) New Total Cyprus government budget cost 1m, but as the new ratio is 9/1 then the EU will provide ii)Total expenditure for research 10m Total reduction of expenditure 10m Yet all good plans of mice and men... i was led astray by the things I was hearing by my fellow panellist and looked to the past rather than the present. You can watch it here and tell me what you think...

By Alexander Apostolides on October 07, 2012

Another great article in the Sunday mail by Costas Apostolides

Most newspapers had thoughtful economic article today in regards to the government proposals to the "Troika" (I hate using that term - it suggests unanimity of purpose and a solid organization rather than an ad-hoc consortium of lenders of last resort), the Sunday mail was great. The article which can be seen here was written by a man I love and respect very much, even though I disagree about some of the issues relating to the Troika. No one knows Cyprus more and no one has worked more on practical issues to see this island have a better future, both in relating to his time in the planning bureau or his frankly amazing work on the economics of a solution in Cyprus. He happens to be my father and the reason I got to study economics and history. This article was written by him in today's Sunday mail. The impact of economic and financial crisis By Costas Apostolides Published on October 7, 2012 CYPRUS is a small country with a dynamic economy that is service orientated (80 per cent) and where growth sectors such as ship management bring in around a billion euros a year, the large number of foreign exchange on-line operators may well contribute even more, and the fastest growing economic sector is “house maids”. The aim of this article is to shed light on the economy, and to examine the impact of the international economic and financial crisis. Since the establishment of the Republic 1960, this is the first recession that has been caused by economic factors. The recession of 1964 was caused by inter-communal fighting and that of 1974-1976 by the Turkish invasion, while in 1991 it was caused by the first Gulf war. For all these the government (in cooperation with business and the trade unions) took immediate action, and the recovery from the 1974 Turkish invasion has been characterised an economic miracle. Unfortunately this time both the government and the Central Bank were found lacking, and there has been a total lack of cooperation on both the political level, and the business/labour level. The international financial crisis started in 2006 in the form of problems in the USA subprime mortgage market, which affected the financial sectors including the banks in almost all the major economies. It had an immediate effect on the UK in the form of a banking crisis, which led to recession in Cyprus’ major market in 2008 (-1.1 per cent GDP). The effects were a decline in outbound UK tourism from 2007 to 2011, while at the same time the demand from the British for houses in the whole Mediterranean region virtually evaporated, effecting the economies of Portugal, Spain and Cyprus. As a consequence Cyprus was hit in tourism and construction/real estate because in both sectors the British market accounted for over 50 per cent of the market. Cyprus at that stage had virtually no “toxic bonds”. The eurozone began to be affected in 2008, and in 2009 GDP fell in all the eurozone countries, and 4.3 per cent overall. Cyprus came through relatively mildly with a GDP contraction of only 1.9 per cent, the lowest in the eurozone. There was a decline in tourist arrivals from the UK, the Scandinavian states, Ireland, France and most other European countries. Business in hotel accommodation and restaurants fell (-6 per cent), construction sector was the most affected (GDP fell -18,7 per cent), followed by the associated sectors of quarrying (-25 per cent) and manufacturing (-5.8 per cent). Construction fell largely because of the collapse of the UK market, which affected primarily the real estate/construction sector in Paphos and in Famagusta coastal areas. In 2007 the Department of Lands and Surveys registered 14,586 contracts for real estate sales from foreigners, of which 43 per cent from Paphos. In 2011 only 1,670 foreign purchase contracts had been submitted, with less than a third from Paphos. Since 2009 the economy has been in stagnation, and appears to be back into recession in 2012. The sectors that are showing growth are first and foremost employment by households, that is foreign housemaids and those engaged in gardening activities, followed by the financial sector including the banks, services and the public sector. Transport and communications were in recession in 2009 and 2011, while hotels/restaurants have recovered strongly in 2011, and tourism revenues have sharply increased in 2012 also. The retail sector has been hit by the reduction in personal consumption in 2009, and many shops have closed, leading to major changes in the real estate sector. In contrast to the relatively moderate effects on GDP of the crisis, unemployment has risen sharply from 2009 onwards and reached 7.5 per cent of the economically active population in 2011, and is currently around the EU average of about 11 per cent. Cyprus has never experienced such a high rate of unemployment other than in the period of 1974-1976. This is the most tragic effect of the crisis that is affecting the population at large, especially young people. The fact that the economy is not growing also resulted in a fall in productivity in 2009, and stagnation in productivity in 2011, as well as the probability that school leavers will not get jobs in June. The recession and stagnation in the economy have had the effect of increasing pressure on government services such as health and education because many people can no longer afford private sector services. State revenues fell sharply in 2008 from €7.4 billion (about 9 per cent) to €6.7 bln in 2009 (fully absorbing for the surpluses of 2007/2008). By 2011 state revenues were still below the 2008 level. At the same time state expenditures continued to increase from €7.2 bln in 2008 to €8.4 billion in 2011, mainly owing to an increase in social welfare provisions (€633 mln) and civil service pay (€310 mln). As a result a fiscal problem arose, because the public sector went from small surplus in 2008 (€161 mln) to a deficit of around a billion euro in each of the following years (2009, 2010, 2011). The deterioration in public finances was the reason why credit rating agencies began to downgrade Cyprus in 2011 junk status in 2012. As a result the government has had difficulty raising funds in the market, and cannot finance a recovery programme. The credit rating agencies are, therefore, preventing a recovery and restructuring programme from taking place, though it must be stressed that the government failure to consider the effect of recession on its revenues and its insistence on proceeding with additional social benefits, exacerbated the problem and contributed to the present situation. The major failing, however, has been in monetary policy. Not only because the banks invested in Greek bonds, but due to the high interest rates of 7 per cent to 9 per cent charged to consumers and businesses, which are preventing growth. Without lower interest rates economic growth cannot take place, the situation cannot be remedied, but there have been few practical proposals put forward in this regard. Costas Apostolides is Chairman of EMS Economic Management Ltd

Interview of Dr. Theodore Panagiotou and Alexander Apostolides at the Sunday mail

I just finished reading the troika and the government proposal at 4 this morning and I found much that made me upset. I agree with Dr. Panagitou's comment that "the proposals seem drawn by accountants, not economists" in the article where i be the great friend and journalist 10 euros if we received a tranche of the bailout by december, since I am not so sure it will pass through all stakeholders. Here is the original link,: Counter-proposals make second bailout certain By Stefanos Evripidou Published on October 7, 2012 THE GOVERNMENT’S counter-proposals to the troika were slammed yesterday by economic analysts who predicted tax revenue and economic activity to fall even further as a result, making a second bailout “unavoidable”. Dr Theodore Panayotou, director of the Cyprus International Institute of Management (CIIM), slated the government’s counter-proposals - largely made up of direct and indirect taxes - as a “pure accounting exercise” which “totally misses the point”. According to Panayotou, the proposals to impose more taxes and cut salaries in the private and public sector will end up lowering disposable income and reducing economic activity, resulting in lower profits for companies, greater unemployment, lower tax revenues, and more spending on social welfare. “Even though taxes will be higher, the numbers estimated (in expected revenue) will never materialise,” he said. “I expect more unemployment as a result of the reduction in economic activity, and an increased need for social spending. We will need to sign a second memorandum (with the troika), which is exactly the path followed in Greece,” he said. Panayotou was quick to add that the troika’s own proposed measures are far from perfect. “It seems they haven’t learnt their lesson from Greece. Their approach focuses too much on cutting (public expenditure), but these are accounting measures. The problem of the Cyprus economy is not just an accounting problem, the problem is the public sector is highly unproductive.” He argued that 20 per cent of the public sector produced the same work as the remaining 80 per cent. With the proposed measures, both productive and non-productive public employees will get the same cut in salaries, de-motivating those that do most of the work, instead of encouraging increased activity. The CIIM chief called on the government to introduce interchangeability in the public sector so civil servants could be transferred from overstaffed departments to ones where there is a staff shortage. He also called for a proper evaluation of public servants which will link their wages to productivity. Panayotou further argued for a reduction in the “outrageous salaries” of public employees on the middle to lower-end of the scales, saying these were twice as much as those in similar positions in the private sector. “A second problem of the Cyprus economy is that the private sector is highly uncompetitive vis-a-vis its partners in the eurozone. Basically, we cannot export anything, and even our tourism product is not competitive. “Therefore, tax revenues will keep going down, because economic activity will go down, and we won’t really be getting out of the mess. It’s highly predictable we’re going for a second memorandum,” he said. “The people who prepared the proposals are not economists, they’re accountants.” Panayotou called for a focus on keeping economic activity high and tax revenues high “otherwise you’re getting into a vicious circle of more and more depression, and a downward spiral”. He questioned why the private sector has not focused on promoting sports tourism, medical tourism, convention tourism, and started more energy-saving initiatives. “So many things that can be done are not being done. If we don’t try to become more competitive, we are lost. It’s a losing game when you have no investment in innovation, research and entrepreneurship. We don’t understand what it means to create value,” he said, adding, “As things stand, a second memorandum is unavoidable”. Alexander Apostolides, a lecturer in economic history at the European University Cyprus rejected the finance minister’s claim that the bailout could come by the end of December. “Even if we accepted the troika’s proposals today, the bailout still has to be agreed by the IMF board, the Commission in Brussels, and some hostile European parliaments, like Finland where they have elections coming up. There’s no way.” He too cast doubt on the government’s forecasts for increasing revenue, saying it was ignoring the substitution effect, where increased taxes convince consumers to find cheaper ways to maintain their standard of living. Apostolides questioned when the state would finally run out of money, noting that it has been engaging in short-term borrowing at a very high interest. “Also, at the end of October, the banks need to be recapitalised and no one really knows what will happen if they’re not,” he said. --------------------------------------------------------------------------------------------------- Licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. . You are free to copy content but you must link back to this blog and attribute the work to me (Alexandros Apostolides).. You cannot use my work for commercial purposes and you must share it under the same terms I do.

By Alexander Apostolides on September 26, 2012

How to change the way academic publishing

A great article by by Hugh Gusterson but i think he avoid seeing how this took place which is important. Professionalization of academic publishing inevitable; we need make the top 1% universities in the world which are well funded that their ability to pay all these exorbitant fees is putting a wall on research and idea dissemination.

What if Economists were beasts with special powers? A very funny post by Noahpinion

What if economists were special persons with superman powers - they would hten have a bestiary entry. Noahpinion has done just such an entry. I have to say they are clear biases showing but the entry for the monetarists and Austrian economists are dead on. Enjoy light hearted humour and the realisation of how much economists has fragmented...

By Alexander Apostolides on September 24, 2012

A thoughtful post by Adonis Pigasiou on the current state of Cyprus (written before the Kyprianou statement on leaving the Euro)

Blame game persists as Cyprus’s quest for a bailout has turned into a saga by Adonis Pegasiou
Original is here: Cyprus has been locked out of international markets for more than a year now and it is only thanks to a Russian loan that it managed to postpone a bailout request from the EU last summer. With the Russians being hesitant to renew their lending to the Cypriot government, President Christofias has been left with no option but to seek aid from the IMF and the EU. Nevertheless, he is still being accused by the opposition parties of trying to further delay the adoption of any measures, at least so until the presidential elections which are scheduled to take place in February 2013 – the burden of a possible ‘surrender’ to the IMF ‘neoliberal’ doctrine may prove unbearable for AKEL (Cyprus’s communist party currently backing the government). The pending adoption of painful yet all too necessary measures has sparked an over-stretched row of confrontation between government and opposition parties as to who is to blame for the current state of the Cypriot economy and the downgrading of the status of the Cypriot economy to ‘junk’. Government members refuse their share of the blame by highlighting the collapse of the banking system as the main reason behind the country’s current precarious situation. Mainly because of Cyprus’s establishment as a successful global financial centre, the banking system of Cyprus is indeed disproportionately large in relation to the country’s GDP, as illustrated in the table below: Banking system in Cyprus with heavy exposure to Greece (IMF, 2011) Total Percentage to GDP Total Bank Assets in Cyprus €152 billion 835% Assets of commercial banks with Cypriot parents €92 billion 500% Exposure of these banks to Greece €29 billion 160% Cypriot banks have consistently tried to expand their presence in the Greek market and, as a result, they are now loaded with a disproportionate amount of non-performing loans. In addition, and most importantly, there has been an unsound purchasing of Greek bonds over the past few years, even a few months prior to Greece’s request for aid, which has proved to be a mistake and substantially damaging for the capital ratios of the banks. The extensive haircut performed on Greek bonds has forced Cypriot banks to incur heavy capital write-downs and has left them with no other option but to turn to the state for aid. Even though the exact amount of state aid needed has not yet been precisely defined, it is certain that the effect on the national debt will be immense, and possibly even detrimental thereto. On the other hand, opposition parties are adamant in highlighting that the government must be also held accountable for its lack of action, which further deteriorated the problematic situation. Christofias started his term in office with a remarkable support from all political parties (apart from right-wing DISY), and with a growing economy. Looking at some of the indicators then, national debt to GDP ratio was below 50%, one of the best in the EU, while unemployment was below 4%, a remarkable figure by European standards. Today, having nearly completed its term in office, the Christofias government is in political isolation (only AKEL still supports and participates in the government) and criticism is mounting over how badly the economy has been managed in the last 5 years. The debt to GDP ratio, without considering state aid that will be required by banks, is nearing 75% and is expected to grow even more, unemployment is above 10%, for the first since the events of 1974, and recession has hindered steady growth. Taking a step back from the debate, Cyprus has many traits that are akin to a Mediterranean model of Capitalism, as this is described in the comparative political economy literature (Amable, 2004). More precisely, this relates to the dominant and influential role of the state in the economy (as a strategic planner, an entrepreneur/owner of public utility enterprises and an employer, with a disproportionate amount of people being employed by the state) and a rather fragmented and unevenly developed welfare system (with peaks of generosity accompanied by macroscopic gaps of protection and relatively more employment than social protection (Ferrera, 1996)). Given this, the Cyprus government could have, especially given the global crisis, pursued those measures that touched upon long-lasting inefficient government practices that cost a great deal of money. For example, making the wage indexation system more just and restructuring it so as to protect the earnings of those in real need; prioritising the need to better target government allowances and benefits; taxing allowances in the public sector; strengthening the inland revenue department so as to combat tax evasion; facilitating foreign investment by eliminating red tape and many others. There is no doubt that such measures could have been pursued with greater commitment and no time delay. Furthermore and equally importantly, Cyprus, having suffered extensively from the collapse of the banking sector, should more eagerly pursue the establishment of a stronger and more efficient supervisory and regulatory framework, not only at the national but also at the European level. This would help in making the system more transparent and prevent future mistakes by bankers which could possibly jeopardise the whole economy for the sake of short-term profits and bonuses. Hope for Cyprus is all but lost but the bigger the delay in adopting measures, the more the economic uncertainty will be prolonged with additional adverse effects on the economy. The on-going blame game between politicians has done enough damage already. References: Amable B. (2004) The Diversity of Modern Capitalism, Oxford University Press Ferrera, M. (1996) ‘Southern Model of Welfare in Social Europe’, Journal of European Social Policy, 6 (1), pp. 17-37 IMF (2011) Cyprus Country Report No. 11/331 This entry was posted in Cyprus. Bookmark the permalink. --------------------------------------------------------------------------------------------------- Licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. . You are free to copy content but you must link back to this blog and attribute the work to me (Alexandros Apostolides).. You cannot use my work for commercial purposes and you must share it under the same terms I do.

By Alexander Apostolides on September 01, 2012

A response to Protesilaos Stavrou’s “ is Euro area facing a balance of payments crisis”


I know and like Protesilaos personally for two years and I more often in agreement than not, but I must say that the following document (http://www.protesilaos.com/2012/08/euro-balance-payments.html) needed a response.

In the document Protesilaos criticised the obsession of many economists, including Krugman, of seeing the Euro crisis as essentially a balance of payments crisis that is made worse through the straightjacket of the Euro. He attacks the above by suggesting:
1) That the abstract of national trade is a statistical construct that is not very relevant to today’s G0 world of multinational manufacturing and services
2) That balance of payments are not linked to any socio-cultural characteristics
3) That imbalances within nations are frequent and they do not illicit such worries over the viability of a currency.

I disagree with all of the above.
a) This is not the first crisis that the EU has faced; in fact all European crises, whether triggered by exogenous factors (the oil price hikes in the 1970s) or by endogenous factors (Germany’s decision to keep interest rates high in the early 1990s) always end up becoming balance of payments problems as that is the essential weakness that underlines the European project. Although balance in trade was traditionally in surplus for the “core” of Europe and in deficit for the “periphery”, this was more than made up by the great migration of periphery workers to the core, whose remittances kept the balance. Where balance did not exist, nations would depreciative their currencies, hoping to remove balance of payment constraints, an option that is not available in the Eurozone. Depreciation was not necessarily a good option as it integrates a vicious cycle: “periphery” countries with limited raw materials found that a depreciation triggered another round of inflation (through the increase of the price of imported primary goods) leading to a further decline in competitiveness in the balance of trade, needing further future depreciations
b) No one claims that macroeconomics is not essentially an abstract idea, but its usefulness is not to be denied. National Accounts, trade statistics and others count what is going on in aggregate in an area defined by a set of rules where one authority holds power. It happens that we call this area a nation, and that since nations have their own set of rules for individuals, factories or companies, it is a very good summariser for economic vitality. Since a nation has substantial power over the individual then its decisions must be made while focused on the increase of the greater good – hence the need to think in terms of nations.
c) Just because there is a construct in creating a national level data the idea is still valid and useful. It enchases our ability to understand what is going on and perhaps find out what are the underlying causes a problem in a way that the microeconomics data might not be able to (people are not very good with data overload; machines are but are not very good on insight). Sure national data are a summary and as all summaries you lose detail but you gain insight – the long view. Yes the interactions of individuals across borders are not easily being pinpointed, but it is clear that if Greece fails to land a multinational firm making parts for a German auto company its balance of payments position will deteriorate over time, dampening the possibility of having economic growth (unless you have it on credit – and we all see the problems of that strategy).
d) Yes nations do have internal imbalances, and they rightly worry nations – they are not being as frivolous as Protesilaos suggests in ignoring their internal balance of payment problem areas. Italy is suffering from this problem through a North South divide, so in the US, and both have affected the political climate either through requests for limiting the national authority over the regional areas. Both countries a chucking huge sums of money on the problem, being aware that they risk having areas which are permanently in poverty who decide to undermine the national union.
e) I am afraid only with federation where they will be automatic aid to areas under deficit will the Balance of payment issues of the European Union will this problem cease to be so damaging to Europe, but since the mood in Europe is turning against a federation, I have to agree with Krugman and others that the Balance of payment imbalances between the “core” and “periphery” will remain one of the central weakness of the European Project.

By Alexander Apostolides on August 21, 2012

Things that are cheaper than the Laiki Bailout: No.8 Sending a rover to Mars


Ok we do not have the exact cost of the curiosity rover (somewhere from 1.6 to 2 billion euros) but it pretty amazing that what we will give to 1 bank in Cyprus is more or less enough to employ hundreds of scientists for years.

This video shows how amazing a technological feat is the curiosity rover more correctly known as the Mars Science Laboratory. It is a work that will defy our generation in terms of space exploration and has led to scientific discoveries and amazing leaps in science and technology, employing thousands of people. They developed a sci-fi sky crane to land it- how cool is that!

So would you prefer that the rover was Cypriot - broadcasting "Ta riallia Riallia Riallia" to Mars rocks rather than bail out bankers wealthier than us?


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Dom Mintoff 1919-2012


For a while back in the 1960s and 70s Malta and Cyprus were less recognisable as geographical places but as the birthplaces of 2 "larger than life" personalities: Dom Mintoff and Makarios.

Mintoff was a force of nature; The times of Malta was right to suggest that he was born in the right time for a citizen of Malta to be propelled in such heights of global recognition, but his quest for change and political skills can not be underestimated. The general secretary of the Malta Labour party at the age of 19 (?!!), Mintoff oversaw the huge reconstruction effort in terms of public works that was needed in Malta from his position as Prime Minister and Minister of Public Works and Reconstruction in 1947.

What stood out was his desire to play hardball with the British: the archipelago was effectively a dependency of the British forces, yet Mintoff realised the winds of change that decolonization was effecting. He had no problem in making U-turns in order to achieve what he saw as his main goal - rapidly increasing and equitable increase in standards of living within his generation and the transformation of what he saw as the "backward" societal norms of Malta.

After overthrowing the cautious Malta labour party leadership he ruled with an iron grip within the party, turning toward more radical demands: If Britain wanted Malta, it would have to integrate it within the UK; The UK would not use the Maltese base "on the cheap" - it should first ensure that the welfare state and society of the island would change the same way as the areas around bases in Scotland or elsewhere in the UK where benefiting. Although this sounds as pro-British policy it was actually a threat posed by Mintoff: If such demands were not met, Mintoff made it incredibly clear that independence was the only way forward, and for true independence to be achieved the military presence of the UK and the west had to be expunged. Like Makarios he played the hand of the East against the West in the cold war to get things done (a dangerous and complicated game that involved also the non-aligned movement and friendliness to dictators like Gadaffi), yet Mintoff was firmly attached to the west- his vision of Malta was of an industrialised nation of egalitarian principles and of redistribution of wealth.
Without Mintoff it is very unlikely that independence would have been achieved at the time it did, not that Malta's strategic role in the military world order would end.

Economically he presided over period of strong economic catch up growth that was redistributed quite evenly across society; yet he was set towards socialist type of industrialization projects that had no place in island societies- like Cyprus Malta is littered with bad idea manufacturing projects that began life under his reign.

He was also not koy in using any means to his disposal including electoral gerrymandering and even violence; He was supremely confident about his abilities and would dismiss even valid opposition out of hand. I am not so sure all would agree if he was a net positive for Malta, but he certainly was a huge shaper and mover of its modern history.

By Alexander Apostolides on August 09, 2012

Bill Clinton Speech in the EUC: A great example of good oratory and common sense policies

I loved the Clinton speech in Cyprus in my university. It showed the attitude of "do it don't just talk about it" Which is missing in Cyprus- the island seems to be in the zone of "talk about it but don't do it".

My highlights were the three excellent questions of three of my students, George Tofa, Marios Papanicolaou and Nadira Slamova, which I felt that Clinton did not answer Nadira's question in order not to damage Obama.
Other highlights of the speech included his deep understanding of the interdependence of nations, a matter very dear to my heart after working in the Economic interdependence of all Cyprus.
Clinton highlighted the risks of greater interdependence (which he sees as a highly positive force)as environmental, unequal spreading of income and unequal spreading of risks. Very interesting was his innate understanding of rates of return - he suggested to get some unemployment down by painting roofs white in the summer and the rate of return in lower electricity bills will be almost immediate.

By Alexander Apostolides on August 08, 2012

Great Sources Unused in Cypriot Historiography No.2: The Cyprus Agricultural Journal


Thanks to fellow twitterers I remembered that I was supposed to make a series of Great Unused sources of Cyprus History. After a very long delay, I decided to restart this series.

The Cyprus Agricultural Journal is one of the first periodicals published in Cyprus. Introduced by a very forward thinking person,an Athenian educated Cypriot who came back in the start of the 20th century to bring some improvement to the miserable life of the Cypriot farmer. It was continued and expanded by the British Colonial Administration and was the main source of Farming information for the island.

It contains amazing information on many fields. Firstly it contains an overview of the farming situation in Cyprus per quarter. It then talks about the issues that could help farmers such as how to help combat pests. Most interestingly for me it describes costs and processes of Cypriot farms: It is amazing what it refers to - from the processes of making halloumi to the amount of milk per type of sheep. It is pretty amazing.

The best part it is that is has been mostly digitised by the Ministry of Agriculture and you can request it for research purposes in pdf format. The picture shows the huge amount data you could collect - it was pivotal for my research on Cypriot GDP.

By Alexander Apostolides on July 24, 2012

They can not be serious! 13 Bn. is crazy;

They can not be serious! 13Bn is crazy It seems that the amount of the Cyprus bailout is nearing a final amount of 13 bn. That is crazy, comming out 16,185.3 per man, woman and child in Cyprus. We can never pay that - if our needs are that high ( i doubt it) we need to default now and learn from Greece- at least renegotiate. With debt to GDP of 160% we need not to wait and realise it unpayable latter, increasing uncertainty. A haircut is not an option either-pensions would be blasted. can we borrow less for stupid banks

By Alexander Apostolides on July 20, 2012

No. 7 reason why Laiki bailout as it happened was a bad idea...

A quick thought occured:
Thought of the day: 1.8bn given to Laiki divided by aprox. 300 thousand households: average household cost (or to be correct forced investment) is 6,000 Euros!

I would want direct ownership for so much of my family's investment thank you very much...
For 6,000 euros I want and need full ownership thank you very much - and heads rolling in all positions, perhaps even a cull of the whole risk assessment division of the bank as it is clearly a joke.
If the banks took such risks by acting as helpers to startups then i would be more willing to support them. They lost so much money by refusing to believe WHAT EVERYONE WAS SAYING - that Greece was in a mess and a haircut was the only way forward.
I found the a few slogan:
Risk Assessment division of Marfin- Doing more damage than Mari!
Risk Assessment division of Marfin- Watering hot containers in the sun for you.
Risk Assessment division of Marfin- We help the environment by buying all the Greek toxies

By Alexander Apostolides on July 19, 2012

Things that are cheaper than the Laiki Bailout: No.6 Manchester United



From Kyriakos (@Chuparos) with thanks:
I am not sure if the Glazers are selling the club but I really would have preferred the state spend 1.8 billion Euros to purchase Manchester United, currently valued at 1.81 bn euros (I am sure we will get a small discount so that is cheaper than the Marfin Laiki bailout).

I am getting angrier and angrier when I do this. At least if we bought Manchester United we would have had full ownership rights, something we do not have in Laiki. Why the hell did we ever agree to this?

By Alexander Apostolides on July 18, 2012

Ο Στέφανος Στεφάνου αληθινά νομίζει ότι κυβερνά κούφα χρυσόψαρα

Στέφανος Στεφάνου "Είπε επίσης ότι πρέπει να λαμβάνεται υπόψη και το γεγονός ότι οι στόχοι που τέθηκαν για την κυπριακή οικονομία είναι πάρα πολύ φιλόδοξοι, δηλαδή το έλλειμμα να είναι κάτω από το 3% ως το τέλος του 2012, περίπου στο 0,5% για το 2013 και από το 2014 και μετά να υπάρχει ένας εντελώς ισορροπημένος προϋπολογισμό."

Τώρα σας φαίνονται δύσκολα; Όταν δεχτήκατε στόχο ελλείμματος από την κομμισίον 2.5% δεν είπατε κιχ. Νιώθω ότι αύτη η κυβέρνηση νομίζει ότι κυβερνά κούφα χρυσόψαρα. Τόσο καιρό φωνάζαμε για διορθωτικά μέτρα και δεν άκουγαν ούτε τους δικούς τους, λέγοντας ότι όλα ήταν υπό έλεγχο και τώρα θεωρούν ότι έχουμε την μνήμη των χρυσόψαρων, και δεν θυμόμαστε ούτε τις υπεραισιόδοξες μπούρδες ούτε τις υποσχέσεις τους προς εμάς και τους Ευρωπαϊκούς εταίρους.

Περί ιδιωτικών πανεπιστήμιων και αυξήσεων διδάκτρων – γιατί η κυβέρνηση δεν είναι η λύση;

Μια μικρή σκέψη. Η κυβέρνηση φωνάζει για την αύξηση διδάκτρων στα ιδιωτικά πανεπιστήμια της Κύπρου. Η αύξηση ήταν λιγότερη από την αύξηση του ρεύματος που η ιδία σύστησε εναντία των συμφερόντων των καταναλωτών. Στο τέλος τέλος θα μπορούσε να βοηθήσει τα ιδιωτικά πανεπιστήμια να μειώσουν τις αυξήσεις τους με να μειώσουν την κρατική γραφειοκρατία της εποπτείας. Γιατί πτυχία πρέπει δια νόμου να είναι 4 χρονιά όταν είναι 3 στην Αγγλία; Το κόστος του φοιτητή θα έπεφτε κατά 25%.

Things that are cheaper than the Marfin Laiki bailout no.3, 4 & 5: Research, Football and Oil deals


I an still finding the amount the government has given to Marfin Laiki without taking full control of the company staggeringly high. Although this is a crude way, I want to show how big was the bailout by comparing it with other aspects of out lives and understand that this help is unprecedented and it should come with direct nationalisation and control.

What can you buy for 1.8 billion euros?

No. 3. All the nanotechnology funding by Europe.
Cyprus is notoriously not spending enough for research and development and this has an impact on the type of industries it generates. Such a large injection (1.8bn euro) into research and technology, provided it was targeted to worthwhile projects, could provide a tremendous boost to the productive capacity of Cyprus since the Cypriot government by its own admission only provides 25 million euro for research.
Nanotechnology is just the sort of sector where Cypriot disadvantages such as location and lack of resources are not applicable, and were the high skill base of the labour force could allow for successful implementation and creation of a new globally competitive industry.

No.4. All the losses of the top flight football clubs for 2010

We look at the amount of money that Abramomvitch and Sheik Mansour seem to waste on their football teams, yet the total loss of all top flight European football was smaller that the Marfin Laiki Bailout. These fat cats at least are getting something out of all this spending - a chance to be entertained like Roman Emperors of old. I doubt if we will see Marfin Laiki staff scoring wonder goals in the champions league for the amount of money we have spent.

No.5 - the foundations of a high tech oil and gas industry

We hear all these wonderful announcements about the imminent extraction of gas from the sea, but such industries need a frightful large amount of investment. Even countries with exisitng oil industries are having to spend amounts comperable to the Laiki bailout to overhaul the industry they have. If such amounts could be spent by the government on the gas industry then the deals it could strike with any strategic investor would be more more profitable and credible.

Now we hear other banks and the state needing a external bailout of 15.5 bn. When the number is finalised we will begin a new series to show just how staggeringly large that number is for an economy such as ours. That number could overwhelm us into an economic crisis that could be the most severe ever faced in our short history, despite facing insurrections, civil strife, terrorism and war.

By Alexander Apostolides on July 06, 2012

Things that are cheaper than the Laiki Bailout: No.1 & 2


I do believe increasingly in the ideas that markets should really work on the principle of "let the buyer beware" and hence I am not the most keen supporter of the Cypriot government sponsored bailout of Cypriot banks.

These bailouts have disquieted me even more with the way they have been made: I would prefer a share deal that is straightforward and a more outright nationalization. That would allow the government to collect information on possible regulation violations, kick out all executives who actively brought the banks in this mess, and perhaps prosecute those who might be liable, either through civil courts or the the security and exchange commission.

My views might sound as they lack consistency but they do not: what I am saying is that I am against bailouts due to the creation of moral hazard problems (allowing bank managers to use high risk strategies, knowing the state will cover any losses). But if a bail out has to happen then it should take place in such a way as for government has full control and it can punish those who let the bank down severely.
The latest move by the government of Cyprus to purchase 1.79 billion worth of Laiki shares based on a law that was unnecessarily rushed through parliament was a huge deal for the small Cypriot state, as the amount is just over 10% the county's GDP.

But what can 1.79bn buy you in the world? Well you are just shy of building the shard in London with that amount of money and since real estate in Cyrpus is cheap8er than in London, I am guessing you could build 1/2 little buildings on the side.

[Corrected 06/06/2012] Alternatively you can build a pipeline for gas from the Cypriot gas find to Cyprus as underwater pipelines are very expensive to build and maintain.

I wonder if the people that find the bailout of Cypriot banks so appealing can convince me that buying Laiki will provide more returns that these two suggestions...

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