Our View: Our main economic woes predated the pandemic

Cyprus received €250 million through the European Commission’s SURE programme on Tuesday and is set to receive another €229 million early next year. SURE, which stands for Support to mitigate Unemployment Risks in an Emergency, is a programme aimed at providing funds to member states in order to deal with the negative economic and social consequences of the pandemic. The money is used for government support schemes aimed at protecting jobs and supporting small businesses that have been affected by measures taken to control the spread of Covid-19.

Labour Minister Zeta Emilianidou took great pride in the fact that all eight support schemes that had been running since March were approved for funding by the Commission and that Cyprus had secured the highest amount of money in proportion to its population. “This gives us courage to continue to implement all these plans because all those who work, businesses and the self-employed, really need our support,” said the minister, in announcing the news on Wednesday. It should be noted that the SURE programme money is given as a loan, on favourable terms, repayable over 15 years.

While Emilianidou’s pride in securing Commission approval for her ministry’s schemes is understandable, there was another announcement by the Commission on the same day that did not receive much media coverage. The Commission’s Alert Mechanism Report for 2021 warned that Cyprus was still experiencing excessive macroeconomic imbalances, particularly the high stock of non-performing loans of the banking sector as well as the very high private, government and external debt. The report, which included figures until 2019 said the current account deficit, Net International Investment Position, private sector debt and government debt ratio indicators were beyond the indicative threshold.

All these indicators are set to take a turn for the worse this year with the tourism industry collapsing, government increasing its borrowing and GDP set to contract by about 6 per cent. While the decline has been caused by the pandemic and all countries are facing similar problems, it should be borne in mind that our main economic woes predated the outbreak of coronavirus. The index of bank provisions in May 2020 was up on the previous year at 54.7 per cent while the EU average was 47.6 per cent. The finance ministry acknowledged the NPLs were “quite high compare to the European average and remains together with the excessive borrowing of households and businesses the biggest challenge faced by the banking sector, affecting its capitalisation and profitability but also the prospects of the economy in general.”

It was yet another dig at the political parties that are oblivious to what is happening to the economy and are using the pandemic to play their dangerously irresponsible populist games and encouraging people not to honour payment obligations by suspending foreclosures and protecting from eviction people that do not pay their rent. The attacks on the banks by politicians who constantly present foreclosures as a crime rather than what it is – a legal measure against people refusing to repay their loans – has put the banks on the defensive, a point made by the Commission report. “Foreclosures have stopped…. It is not clear how willing banks are to proceed with repossessions in the current climate,” said the Commission.

This is what should be at the centre of economic debate and not that the Commission approved the funding of our support schemes. The finance ministry has been trying to raise awareness about the NPLs and the unnecessary risks posed to the banks by the reckless populism of the irresponsible opposition parties, with their sights set on next year’s parliamentary elections. Unfortunately, its message is not getting through and neither is the Commission’s, the parties persisting with their bank-bashing and foolish schemes to protect people that refuse to pay their debts, completely oblivious to the risks for the economy.

How can they be stopped, made to see sense and act responsibly? How will they be made to understand that struggling banks with high provisions, no profits and new capital needs will have dire consequences for the economy and jobs? How will they be made to realise that ‘protecting’ a few thousand people refusing to repay their loans, could affect the living standards of hundreds of thousands of people?

The government, acting as the only grown-up in the political system, needs to devise a campaign to inform people about the dangerous path the opposition parties are putting the economy on, while explaining its proposals for economic recovery. And it should not be embarrassed to say that this recovery can only be achieved with financially healthy banks and everyone repaying their loans.