Harris Georgiades, Cyprus’ Minister of Finance was pivotal in the successful implementation and conclusion of the economic reform plan for Cyprus. Saskia Constantinou spoke to him about future fiscal policies
Since the economic disaster of 2013, you’ve implemented and achieved an ambitious reform and consolidation programme and managed to eliminate the deficit. How are you going to continue to keep public spending down?
Yes, doing away with the deficit was one of the main objectives of our policy. Balancing the budget, by focusing on the spending side, enabled us to avoid any tax hikes and to re-establish conditions of stability and confidence in the real economy. As fiscal space is gradually being created, we are now in a position to offer significant tax breaks, essentially giving back to households and business and in this way further boosting economic activity. And this, let me say, is certainly not austerity. In fact, it is the only way to avoid austerity and the risk of a vicious cycle in an economy. So we should indeed maintain this prudent fiscal stance. Apart from a very clear political commitment in this direction, I would point out to a number of structural reforms like the welfare reform, which has already been implemented or the public administration reform, which is currently debated before our Parliament, which will safeguard that public finances will never again spiral out of control.
What were the main factors which contributed to the downfall in 2013? What have we learned?
It was a combination of the unsustainable course of public finances together with an equally unsuitable course of our banking sector which was fuelling an excessive credit expansion and a property bubble. However, we have taken decisive action on both fronts, working under the watchful eye of the IMF and the EU. I have already referred to the ambitious fiscal consolidation. Likewise, the banking sector has healed to a significant extent. Capital adequacy, corporate governance and supervision have all been enhanced. The main lesson learned is that we cannot operate against common sense. We cannot sustainably spend more than we earn and we cannot borrow more than we can repay. Both will work for a while, but will inevitably end in disaster. And that is exactly what we faced a few years ago. However, Cyprus has achieved a remarkable recovery and a very strong rebound, which clearly points to the resilience and good prospects of the Cyprus economy.
Is there going to be compensation for those who lost their savings in the 2013 crisis?
I wish I could say so. But savings were lost because two large banks failed and it was not possible for the taxpayer bear the burden and to bail-out those banks. Thus the bail-in, which has since been adopted across the EU.
There is so much corruption in the world of politics and yet you have remained firm and adamant in your policy. How have you achieved this, and how can we develop a more ethical culture in Cyprus?
I believe it is the duty of those who hold public office to speak the truth and to act for the public interest even if this means that, at times, they become unpopular. But I also believe that it is the responsibility of citizens to scrutinise those in power, to reject populism and to realise that how we vote matters.
What is the current situation with unpaid loans – especially those which are in the millions?
Things are gradually but steadily getting better. Loan restructurings and settlements are happening with a very satisfactory pace. In the case of those mega-loans I would point out to the handing over of property of equal value, which has also been happening on a very significant scale. But obviously more needs to be done both by the borrowers and lenders, especially now when the recovery of the economy is starting to make things a bit easier.
While you have eliminated the deficit, the unemployment rate remains high. Has enough emphasis and opportunity been given to entrepreneurs?
Ultimately all our efforts aim at creating a stable, safe, business friendly environment which will create new opportunities and new jobs. We have come a long way in this direction and even though unemployment remains high, at 12%, it is already much lower than its peak of 17%. It is actually registering the fastest drop in the EU. So we should maintain a steady course, never ceasing to work for a more competitive, productive economy which will be attractive to new business and new investment.
So how attractive are we really for foreign investment and growth? Are we still dominated by bureaucracy and how are we perceived by international investors?
I definitely consider Cyprus as an excellent destination for foreign investment and such significant investments have been happening and were instrumental in pulling our economy out of recession. We offer a stable and attractive tax regime, a wide network of double tax treaties, excellent business and commercial ties with other regional economies, a well-developed legal and institutional framework and above all a very skilled human capital. At the same time, we know where our shortcomings lie. Our banking sector and our public finances were part of the problem but as I have mentioned, we have achieved significant progress on those fronts. Bureaucracy can still be a problem, and that’s where we are focusing our attention, among others, by investing in e-governance and simplifying procedures especially in front line government departments like Tax and the Registrar of Companies.
Fiscal management in the public sector seems to be a great problem – the Cyprus Broadcasting Corporation for example where there is a huge deficit. The national healthcare system is also struggling and it seems that only with financial and administrative autonomy can it proceed. What are your thoughts?
The broader public sector offers good examples and not so good examples. For instance, I am quite satisfied with the University of Cyprus and its progress. On the other hand, nobody can deny that the CyBC does not have a name for efficiency. Local administration is also in dire need of reform. As far as the public health care sector is concerned, I am of the opinion that simply increasing the wage bill for doctors and nurses will not improve things. This does not make the unions happy, but I believe that first we should promote substantial reform, transforming public hospital into administratively and financially autonomous organisations. This will give them flexibility but also responsibility which is exactly what we need if we are to improve.
Do you believe that teenagers have enough knowledge about economics and fiscal management or are we still in a culture of wanting everything the neighbour has and more?
It’s been a while since I was a teenager and my daughter is still 8 years old, so I cannot claim to be an expert on teenage attitudes! But I do believe that we must offer knowledge and inspire responsibility and critical judgement from the early stages in life. We want our youth to be well equipped to cope in a demanding and sophisticated world and this includes being knowledgeable in the basics of economics. Besides, the effort to reconcile unlimited wants with limited means is the very definition of economics and is something which will perpetually face a teenager, a family, an entrepreneur or a government. In all cases, the best answers are those provided by rationality and common sense.
Some economists believe that the Brexit will cause a new Great Depression throughout Europe – do you believe this to be true and has it given Cyprus any added opportunities?
No, I do not believe that we are heading towards a Great Depression. There will be a negative impact but this will primarily affect the UK itself. I regret the vote but at the same time I respect it and what we must now ensure is that the terms of exit will minimise any negative consequences. Cyprus stands ready to support a new, close relationship between the EU and the UK which will minimise any of these downside risks.
Do you believe that this will create a domino effect and lead to any partial dissolution of the European Union?
The European Union has received a blow but it’s wrong to jump to such conclusions. In fact, I believe that the vote has acted like a wake-up call across the EU. Over the years we had become complacent and we did not realise that the European unification process and liberalism itself became vulnerable to populism and to the irresponsible chants of the far left and the far right. The vote should remind us that we should never take history for granted. Instead we should step up the effort and we should fight for our common values and our common future.
How does Harris unwind after his hectic and pressured days?
There is nothing like those evenings with no public engagements, when I can simply stay at home with my family. This is what I have come to value most.
Nicoletta = if there is space, we can add this in a box.
Harris Georgiades was appointed Minister of Finance of Cyprus on 3 April 2013 by President Nicos Anastasiades. He was elected as a Member of the Parliament in 2011 and served as a Member of the Committee of Financial and Budgetary Affairs, the Watchdog Committee and the Committee of Communications and Public Works. He has served as Chairman of the Democratic Rally Young Graduates and as Director of the Democratic Rally President’s Office. During 2009-2013 he served as press spokesman of the Democratic Rally and was also the Deputy Head of the Economic Policy of the Party. He has also been professionally involved in the tourism sector. Georgiades studied Economics and International Relations and European Studies at the University of Reading, UK.