ONLY growth will reverse the difficult conditions faced by the economy, Labour Minister Sotiroulla Charalambous said yesterday, stressing that any measures as part of Cyprus’ bailout should not cause collateral negative effects.
But that appears to be easier said than done as Cyprus’ international lenders have warned of painful years ahead with non-existent prospects of growth.
Charalambous said the bleak situation faced by the economy can be reversed through growth “and this is a critical point for us in the ongoing discussion about the terms of applying to the support mechanism."
Officials from the International Monetary Fund, the European Commission and the European Central Bank - known as the "Troika" - have visited the island twice since Cyprus asked for financial aid on June 25.
“What we have stressed during the two meetings we had with the troika is that we must be very careful so that consumption is not hurt to such an extent that would have negative consequences on the real economy,” the minister said.
The government has also emphasised that the economy’s positive prospects like tourism and hydrocarbons must also be taken into consideration.
It does appear however, that getting out of recession any time soon would be a tall order for Cyprus – and it will not happen before things get worse.
“What we have seen … is that your fiscal system is worse than what we expected,” European Commission representative Maarten Verwey told lawmakers on July 27, in a closed-door meeting of the House Finance Committee. “Again, I want to be honest with you. I don’t like what I am going to say, but there are no growth prospects this year nor the next. It will be a deep recession,” Verwey said, according to the translated transcript of the meeting obtained by the media.
“You cannot maintain your current way of life; if it continues … the government will not be able to continue to pay wages,” the EU official told MPs.
The troika stressed the need for the government to slash the expensive state payroll -- proportionately the highest in the eurozone – and introduce structural reforms.
They said they did not expect a conclusion to the bailout negotiations until September at the earliest.
IMF representative Delia Velculescu recognised that Cyprus had succeeded in overcoming difficulties in the past, warning however, that this time round it was different because of the “strong winds of recession this year and the next.”
“And it would have been much easier to correct these things during the good times but today its much more difficult because we have bad times and worse to come,” she told lawmakers.
Velculescu said the troika was here to help the island, which was now faced with some very difficult choices in the next few months.
She also asked MPs to imagine what the situation would have been if the troika was not here.
“What you must compare is what would have happened if the troika did not exist, if we weren’t here and you had no access to any funding. This should be the point of reference,” she said.
