Used to be that “when the U.S., sneezed, Europe caught a cold” and Cyprus would miraculously get away with a mild flu. The same applies now, as Cyprus banks and investments have little or no exposure to the collapsed U.S. sub-prime market and the UK mortgage sector that caused the recent turmoil.
Why, then, is the Cyprus economy in a free fall with stocks plummeting at rates not seen since 2000/2001?
Could the lagging tourism sector, the struggling services industry and the limping shipping business have been better prepared for any crisis through planning and transparency?
Perhaps, but neither the U.S. example of state intervention nor Britain’s model of nationalization are the ideal solution, as Cyprus, though hard hit from worldwide hardship, is a compact and flexible economy. The impact will be felt much later as recession-hit Britain will supply fewer tourists to our over-priced destination, while the property market is already feeling the squeeze.
The crises that hit Cyprus over the past three decades (1974 destruction and recovery, Gulf wars, CSE boom and bust, etc.) have helped us rethink many aspects of how we do business, but we are still far from learning from the mistakes of others or even from our own.
Analysts and economists in the U.S., skeptical about the merits of the near-trillion-dollar rescue package from the Bush administration, argue that a lack of transparency and unfair rewards to fat-cat executives of failed companies will make things worse. Some of the hawks even suggest that these behemoths should be left to the mercy of market forces. Which is why Washington wants to intervene, not to nationalize every troubled player (as the British have done), but to secure the savings and mortgages of the average American, already hit by rising unemployment and globalization of their industries.
Our own Finance Minister remains ultra-optimistic about the next few years, convinced that minor glitches such as the spike in fuel prices earlier this year and other parameters compounding the island’s levels of growth, are merely temporary and Cyprus will overcome these hardships.
The present administration is willing to allow for the civil service payroll to rise just in time for the next presidential elections which is not too convincing that the government machine will ever be placed under strict fiscal control to the detriment of the taxpayer. On the other hand, we have heard nothing (yet) about reform of the Social Insurance Fund that is supposed to ensure liquidity and safeguard our pensions.
If people think that this ostrich mentality will help us avoid a financial meltdown, then they are wrong, as at this rate of day-by-day planning it is bound to hit us some time soon.
October 03, 2008 – Financial Mirror
