Lesson from Cyprus: Spending Restraint Is the Pro-Growth Way to Solve a Fiscal Crisis | Cato @ Liberty

Map of Cyprus with EU flag

Map of Cyprus with EU flag (Photo credit: Wikipedia)

This is an outstanding must-read article from the Cato Institute. It argues that unlike many other European nations, Cyprus decided to deal with its over-spending problem by tightening belts in the public sector rather than the private sector.

Source: Lesson from Cyprus: Spending Restraint Is the Pro-Growth Way to Solve a Fiscal Crisis | Cato @ Liberty

The article puts Cyprus on a pedestal as best practice and this will be good for Cyprus to attract inbound investment and borrow money in international markets.

However, the article ignores the political and social context.

Firstly, Germany gave Cyprus a very raw deal because she was small. German policy makers deliberately tried to destroy Cyprus business with large Russian companies.

Secondly, unlike bigger countries like France or Italy, Cyprus could not manipulate the rules of the fiscal compact.

Thirdly, the Cyprus example highlights that the EU economic engine is a sham. There is no cohesive energy strategy that capitalized upon Cyprus’ offshore gas reserves. Meanwhile, Angela Merkel, in a box domestically because of her refugee policies, was able to get the EU to stomp up EUR3 billion for Turkey.

The bottom line is that it is not possible to consider economics in isolation, social and political policies must be dovetailed.

In the case of Cyprus, the real prize will come from reunifying the island.



One response

  1. Dr Alf is correct, the Cato Institute has come up with an excellent article which portrays Cyprus in a good light but carefully fails to mention the “bail ins” implemented by Chancellor Merkel, the Russian oligarchs who were tipped off before the bail ins were triggered and were able to remove their money offshore/out of the country in the nick of time.

    Reunifying the Turkish controlled part of Cyprus with the Greek controlled portion could prove highly dangerous given the nature of the migrant deal concluded by Merkel, Erdogan and Tusk because we know that Turkish border guards will turn people loose for a few pounds and that the incentive will be there for Turkey to grant Turkish citizenship to Syrian refugees and reclassified economic migrants in order to let them out of Turkey and onwards into Europe.

    With a reunified Cyprus, an unrestrained Turkey under Erdogan, who is a non secular Muslim leader, might be tempted to see Cyprus as part of his new Ottoman Empire so any Cyprus compact /roadmap must be decision treed and then negotiated in such a way that Erdogan and Turkey, even under a new leader, cannot fix the process to the disadvantage of the people of Cyprus and its expatriate residents (like Dr Alf).

    Cyprus might do better as a Federation within the EU split between two Swiss style Cantons, each with a mandatory population ceiling like Singapore’s.

    Cypriot offshore gas and oil exploration and exploitation makes sense if conducted with countries like Israel which will no doubt join the EU during the 2nd phase of its enlargement.

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