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.
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.
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.