By Alexander Apostolides on October 07, 2012

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.

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