Speech by President of the Republic, Mr Nicos Anastasiades,
at the Chicago Council on Global Affairs
“Lessons from the Cypriot crisis and the road to recovery”
Allow me first of all to thank the Chicago Council organizers for
their kind invitation and their active interest as regards Cyprus-related
issues. It is a pleasure and an honor to have the opportunity to address such a
distinguished audience at the prestigious Chicago Council on Global Affairs.
Exactly two and a half years ago, during my first days in office, I
received an invitation to visit Brussels to discuss an unavoidable financial
rescue package for Cyprus. My economic team and I were well-aware that the
economy was running into trouble:
- The financial sector had run an unsustainable credit boom for more
than a decade, which fueled a property and consumption boom.
- The impact of the decision to impose a haircut on Greek sovereign
debt left our banks on the brink of collapse.
- There was a severe fiscal
crisis . The public coffers were literally on the brink of exhaustion.
The economy, cut off from the markets since 2011, was still running excessive
deficits year by year.
- The structural weaknesses of the Cypriot economy were also exposed by
the crisis.
- The economy was already in recession and unemployment had already
grown by four times within the past five-year-period.
The Brussels meeting was scheduled to take place just two weeks after the election-day.
The official reports revealed a situation far worse than anyone had expected.
The country was faced with an imminent economic collapse, comparable
in its magnitude to nothing since the 1974 Turkish invasion. This was the time of Cyprus’ Great Recession and it
was too late to request an election re-count!
The signs from Europe were not encouraging. It was obvious that the
majority of Euro-area countries were determined to take a very harsh stance on Cyprus; a small
and non-systemic country, with
just 0.2% of the Eurozone GDP. Having initially misdiagnosed the causes of the
crisis, they were determined to tighten the economic governance of the Eurozone.
Cyprus could serve either as an example for other economies on the geographical
periphery of the EU or, even, as an experiment for the Eurozone’s future policy
design.
To avoid the upcoming Armageddon and considering that the second
largest systemic bank had already reached the point of no return, we had to
adhere to an unprecedented and still
questionable Eurogroup decision, which included a severe haircut of bank
deposits. At the same time, we also swiftly agreed on a program of economic
reform and fiscal consolidation. With strict capital controls in place, the
speculation amongst economists was that the program came too late; there were
voices, both internally and
internationally, that Cyprus should
default; that we should leave the Eurozone or even the EU. My government
had to make this program work. It was
not easy. But for us there was no other option.
Ladies and Gentlemen,
Just two and a half years later , I stand before you and state with confidence that we expect a smooth and successful completion
of the program with the next few months. Most importantly, I can proudly present Cyprus as a success story of economic reform. The
Cypriot people displayed great patience and resilience and we have turned the page. We are emerging stronger from the crisis and
we can be very optimistic for the future.
Cyprus has officially exited
recession and is registering
growth as of this year. A much
stronger growth than anyone had expected. We are on the road towards full
recovery:
- With a restructured and fully recapitalized banking sector and with a
strong presence of major US investors like Wilbur Ross and Third Point.
- With the fiscal imbalances fully addressed; without increasing
taxes and without taking socially painful budget cuts.
- With radical structural
reforms undertaken
- With Cyprus returning to the
international markets much earlier than any other program
country.
Over the past two years we have achieved more than just implementing a
difficult program.
- We have maintained one of the most attractive tax regimes in Europe,
confirming the country’s reputation as an excellent business
destination.
- The country’s profile as a transparent international centre was
further enhanced by joining the FACTA list.
- New double tax treaties and other international agreements have been
concluded.
- Our comparative advantages not only remain intact, but are further
enhanced. New productive sectors
of the economy are on the rise.
The international lenders have repeatedly commented Cyprus for its
continuous economic improvements and the “ doomsday” scenarios for Cyprus have
been replaced by praises; “Emerging stronger from the crisis”, “a small miracle”
and “the unexpected resilience of Cyprus” are just a few of the remarks.
We had to take very difficult and unpopular decisions .
But, thanks to the hard work of our people and the responsibility exhibited by
the political parties across the political spectrum, Cyprus is entering a new
era of growth and prosperity. But most
importantly, it is entering an era of sustainable prosperity; not a cyclical prosperity that starts
with a boom, but inevitably comes to a bust.
Based on “responsibility ”, so that never again
we would have to rely on third party “solidarity” or painful and conditional
bail-outs. Based on our own ambitious
reform-agenda, which, upon completion, will significantly enhance the
competitiveness and the growth potential of our economy.
Many reforms are either concluded or are at an advanced stage of
implementation, including:
- A pension system reform.
- A bold welfare
reform, which includes streamlining the number of benefits, better targeting and
the establishment of a Minimum Guaranteed Income for all those in need, in
parallel with an active labor initiative for those eligible.
- A public administration reform including a reform of the
wage-bill.
- Labour market reforms.
- A tax administration reform.
Other critical growth-enhancing reforms have been
already initiated: an ambitious privatizations program, a digital strategy and a
judicial reform. We are also working on improvement of the business environment
and we intend to transform our bureaucracy from a red-tape to a red carpet for
investors. It is the full
implementation of our reform program that will lay-down the foundations
for sustainable growth in the long run. That will set the framework for
attracting foreign direct investments in the productive sectors of the economy.
Referring to the remarks of my dear friend Endy Zemenides, I would
suggest that one lesson any country can learn from Cyprus is that taking
difficult, but necessary political decision and promoting structural reforms works. Even in the
short-run. While it is undisputed that the full benefits of structural reforms
will be acquired in the long-run –and as far as Cyprus is concerned well after the term of my government-,
they are also important in the short run. Especially, in times of crisis, for
one single reason: They act as a catalyst for the restoration the country’s lost credibility;
the restoration of confidence .
And as you all know, the economy is all about confidence and
expectations . Investors,
entrepreneurs and consumers all expect macroeconomic stability; a long-term framework, where they can
operate and create sustainable economic activity; without distortions.
We really had to turn the negative expectations that led the country
to the verge of collapse into a vote of confidence. Because it was this loss of
confidence that sparked a negative spiral of events; with the banking sector
losing deposits and capital; the government being cut off the markets; the
investors being unwilling to invest; consumers unwilling to consume and
entrepreneurs willing to fire.
And to regain credibility
and trust requires action and real reforms . It requires commitment and
determination. We did not just implement, but we actually took ownership of a program of fiscal
consolidation and structural reform and we won the uphill battle of restoring international
confidence. Our quick
reaction to the crisis and the frontloading of a reform strategy
delivered.
It enabled us among others:
- To restore access to the international capital markets and to bring
the levels of the yields of Cyprus bonds at satisfactory levels.
- To facilitate the raising capital for the banks from big
international investors.
- To encourage foreign investors to invest in key sectors of the
economy of Cyprus, including tourism, shipping, marinas, energy and hopefully
very soon the ports and a casino mega project.
And the Cyprus experience goes in line with that of other countries such as Latvia and
Ireland, which have on the whole seen better outcomes than program countries
that applied a more hesitant approach.
As the President of Cyprus I assure you; action in these areas is not
easy. The loss of credibility and many of the economic problems were caused by
years of inactiveness, delays and procrastination. Correcting this situation
inevitably involves political cost, and requires courage and determination. But,
this should be our job and this should be the service we should offer, as
political leaders, to our countries.
A second lesson is that the perception that fiscal consolidation
always leads to deeper recession and rising unemployment is false. We can be more productive by
ensuring that fiscal consolidation and economic growth go in hand. This is what we, as well
as other countries, have demonstrated. Economic recovery or growth is a structural issue and does not always require
continuously increasing public expenditure. For instance, by placing a leash on
public expenditure we were able to avoid the need for imposing any new taxes.
And maintaining a stable and
competitive tax regime is a key element for the encouragement of economic
activity and for attracting foreign investments.
Ladies and gentlemen,
Allow me to move to the broadest picture: The Cypriot case is a part
of the wider EU crisis. For Europe, this was a crisis with a negative impact on
the integration process, and even on the relations between EU member states. A
crisis used by populists to attack the EU and to even surface the political
debate about the possibility of its actual disintegration, ignoring its unique
achievement of half a century of unprecedented peace and prosperity.
However, we have to be honest with ourselves. The crisis exposed the
excessive imbalances, rigidities and uncompetitive economic structures of many
Euro-countries, including Cyprus. But, it also revealed the flaws of the
Euro-system; a mainly political experiment of forming a monetary union, without a
political union or at least an effective mechanism for fiscal consolidation,
without an effective monetary supervision from the European Central Bank,
w ith the structural reforms long forgotten.
It was those systemic weaknesses that allowed or even induced many
Euro-member countries to develop fragilities that caused excessive fiscal
deficits and external indebtedness; excessive risk taking by the banking sector.
And it is clear that the
prosperity of our citizens is at risk if the right framework is not in
place.
But, I am very much encouraged by the fact that action was taken at
EU level. New institutions are being built and new common rules agreed. Concrete
progress is made in establishing an EMU framework that will comply at least with the basic requirements of sharing
a common currency:
- The fiscal framework was considerably
strengthened.
- A permanent crisis management mechanism, the European Stability
Mechanism was created.
- The Banking Union; as from last November, there is now one central
supervisor, monitoring all significant banks in the Euro area, including Cypriot
banks: the European Central Bank.
- Progress towards the building of a capital markets union was
made.
Cyprus has paid a big price not only from our own wrong policies, but
also from the weaknesses of the economic governance and supervision of the
Eurozone and the EU. This is why Cyprus has actively supported and will continue
to support those reforms at the level of the Union. I am convinced that Europe
learned its lesson and is succeeding in changing itself; as it did many times in
the past. This is why the European project serves as a guide for all, especially
Cypriots.
The success of the 60-year-old European project, despite its
difficulties, is a result of the creation of interdependencies through
institutional, legal, and most importantly, economic and market means. It was
the establishment of the four fundamental freedoms and of competition; the
abolition of borders, the peaceful cooperation through trade and voluntary
exchanges; it was the real application of the principle of subsidiarity. It
worked!
It is upon those exact principles that we aspire to evolve the Republic of Cyprus into a federal
union in the context of reaching a settlement to the 41-year-old Cyprus
problem. A settlement that will reunite
the country, its people, the economy and will establish good relations with
Turkey. A settlement that will comprise all the parameters conducive to economic
development, business and investment; regional stability and open markets. With
none of those parameters being
obstructed by political barriers. A solution that will end the rapid alteration
of the demographic character of our country.
This is what we are currently negotiating with our Turkish Cypriot
compatriots. To reach an agreement on evolving the Cyprus Republic to a
carefully designed federal structure of
Cyprus that will work . Based
on those exact principles; the principle of subsidiarity where all problems
would be solved at the lowest and least concentrated level possible; the basic
freedoms; the European law and the new European structures in place that will
guarantee the viability of a European, Federal Cyprus.
With the EU now being a more active player, we will continue
contributing constructively at the negotiating table. We fully acknowledge the
challenges and difficulties that lie ahead. But our responsibility towards our
citizens is to do our best to succeed. And if we do, the solution will act as a
catalyst for the economic development for the decades to come. With huge
potential benefits for many sectors of the economy; energy, shipping, tourism or
transport are just the most obvious.
Only then, we will allow Cyprus to utilize its full potential. If we
relieve Cyprus of all the political barriers that prevent the full exploitation
of its unique geographical position. The solution of the Cyprus problem will be
the most significant growth reform
that we can achieve. A European solution that will benefit Cyprus, Europe and Turkey, as a
constructive neighbour. Turkey should recognize both the prospect and the
reality and facilitate the solution of this long-standing issue.
Let me conclude by saying that our priorities are clearly set out.
Cyprus is at the turning point of history and is addressing all the big
strategic questions of the future. The gas reserves discovered within our
Exclusive Economic Zone (EEZ), but also in our neighbourhood, worth billions of
Euro, are destined to transform Cyprus into an important international energy
hub.
Cyprus has what it takes to become an important gas supplier and
energy hub not only for the neighbourhood, but for Europe itself. And this is
why we are following a regional and integrative approach in our foreign policy
orientation. It is only by improving
our relations with all of our neighbours, by building bridges, by bringing them
together that we can truly utilise the comparative advantages in natural
resources that our region has been blessed with. That’s why we will continue
building bridges with our neighbours and we will step-up the efforts to reunite
our country. The next months are critical to this end.
Within this framework, our relations with the United States are of a
strategic importance. Besides the significant strengthening of our diplomatic
relations, we are also working on building more tangible economic relations. A
bilateral US-Cyprus dialogue is in progress addressing many issues of economic
cooperation. We have seen the first significant US investments in Cyprus, and
will try to facilitate more!
The positive results so far, shall not lead us to complacency. We
shall continue with the same decisiveness and determination in order to
establish a prosperous, united Cyprus, in a united Europe.
We have more than a government programme to implement. We have a
vision to transform Cyprus and to unlock its full potential, for the benefit of
its people.
Thank you for your attention.
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