“I think the growth of the financial sector in the coming years will be healthier and intertwined with the growth of the economy”
The people of Cyprus have so many concerns now; scandals, economic recession, rivalries, the uncertain economic future of the island and of course the upcoming parliamentary elections. As a profound expert in economics, member of the House of Representatives of Cyprus for the last 10 years, professor of economics at the European University of Cyprus, he is the right person to answer our questions, with courage and honesty. Marios Mavrides is our first guest in the new insert of Flexi-News.com
Over time, Cyprus has relied more on the financial sector and tourism. But the pandemic has shaken the country’s economy and wiped out tourism. In what areas and why do you think the Cypriot economy can be supported in the future?
The tourism sector has very good prospects due to the structures and infrastructure it has, which have been significantly strengthened and enriched in recent years (hotels, marinas, casinos, etc.). At the same time, Cyprus maintains great relations and close ties with countries such as Great Britain, Russia and other European countries, from which Cyprus receives an inflow of tourists. Adopting the policy of freedoms of the air, Cyprus has developed excellent and integrated air connections with all European countries. In addition, Cyprus enjoys a modern telecommunication system. However, in Cyprus there are other sectors that have growth prospects such as higher education, health services, energy and green development. These sectors are growing rapidly in recent years and I expect even further growth in the coming years.
Statisticians from both the European Commission and Cyprus state that the losses from the economic blow of the pandemic are estimated to be recovered in 2022. If you agree with the above estimate, how will the Republic of Cyprus be able to recover its economy?
The economic recession caused by the pandemic is not so deep due to the fact that the government has sharply increased spending, which was financed by borrowing at a very low interest rate. I believe that the recovery will begin in the second half of 2021 and will be strong. Inbound tourism is not expected to return to pre-crisis levels but in 2022 will increase significantly. Tourism, along with the reopening of other sectors of the economy, will make up for lost ground in 2022. In addition, as I mentioned above, other smaller sectors of the economy that were on a growth basis before the pandemic will accelerate the recovery.
The financial sector of Cyprus has been hit hard, especially in the area of money laundering. Do you have any specific measures to suggest for the recovery of the financial sector?
The financial sector in Cyprus was operating on a wrong basis, was of a speculative nature and was very large in relation to the real economy. In recent decades it had developed into a “speculative bubble” and naturally was about to collapse. Today, this sector is in a phase of shrinking, restructuring and laying its foundations on a sounder footing. I believe that the growth of the financial sector in the coming years will be healthier and intertwined with the growth of the economy. The prospects of the sector along with the new data are very promising, but I expect that it will go hand in hand with the wider economy. Therefore, the economy will now determine the size of the financial sector and not the other way around.
The EU Multiannual Financial Framework in conjunction with the Next Generation EU, which is the temporary instrument designed to boost recovery, will be the largest stimulus package in the global economy. What will be asked of the EU Member States and in particular Cyprus in order to receive support from the recovery and resilience mechanism?
The money to be spent through the Multiannual Financial Framework in the coming years originates from contributions of Member States and is allocated to them on the basis of programs and actions submitted to the European Commission by the Member States at the beginning of the seven-year period. These programs are targeted at growth, innovation, employment growth, research, social policy, energy, environment, digitization of services, etc. Some Member States absorb more than they contribute and some do not. It is a matter of proper planning and good organization. The same applies to the Recovery and Resilience Mechanism, where € 750 billion will be distributed to Member States in a similar way, with an emphasis on the digital economy, the environment and energy conservation.
The Fast-Track Business Activation policy, which has been operating since last October, has piqued investor interest and six foreign companies have already joined. We would like you to analyze how the policy works and what will be the main benefits for Cyprus?
The Policy is a new tool offered to companies of foreign interests operating or wishing to operate in Cyprus, by having physical presence and a significant volume of work, in order to contribute to the development of the economy, increase employment and introduce new technologies. The companies that meet the criteria will enjoy fast and comprehensive services similar to a “One Stop Shop” in areas such as registration, issuance of operating licenses, registration of VAT and social insurance, the issuance of residence permits for foreign workers, etc. Essentially, if all public services could be done electronically, then the Fast-Track Business Activation policy would not be necessary.
On 14/02/2021 the largest cryptocurrency in the world, Bitcoin, reached $ 49,344. More and more giant hedge funds are investing and trusting cryptocurrencies. “Increased confidence and investment in cryptocurrencies like Bitcoin is a sign that Decentralized Finance is here and threatens to change the world as we know it today.” What do you think about cryptocurrencies? Do you agree with the above statement, of a new digital economic revolution?
Cryptocurrencies are a form of money that can be used as a means of exchanging and storing wealth, but at present, cryptocurrencies cannot fulfill to the full extent the above roles. Firstly, because the fluctuations in the prices of cryptocurrencies are extremely large, as a result of which they do not have a constant time value. In addition, those who choose to hold cryptocurrencies instead of deposits in a currency will be exposed to sharp changes in the value of their money. It will also be difficult for Central Banks to loosen their control of the amount of money circulating in the economy. I believe that cryptocurrencies are promising, but not soon.
Mr Mavrides, although Cyprus is a small island, it may be at the forefront of economic scandals. Shocking examples are the stock market scandal between 1999-2000, in 2013 the depositors of Laiki Bank who lost about € 3.7 billion, the padlock of the Cooperative Bank, the scandal of Dromolaxia, the Investment Program and a host of other financial scandals led by politicians and prominent figures. What do you think is the cause of this phenomenon and why has no government managed to strike at the root of problem and quash corruption and ongoing financial scandals?
Corruption and entanglement are timeless phenomena and arguably were much more intense in the past, but they were just hidden under the rug. Moreover, in the past, these phenomena were accepted by society, e.g. using connections to do one’s job was the rule, not the exception. Thus, cultures of entanglement and corruption were developed. The crisis of 2013, however, shook the Cypriot society and the people “woke up” from a deep “sleep” which lasted decades, with the society now demanding accountability and transparency. Thus, some scandals began to be revealed and some were taken to prison. In addition, corruption in Cyprus has been politicized and there is a lot of propaganda on the subject, which destroys the effort to combat it. It is also worth noting that the corruption index is based on citizens’ perceptions and cannot be trusted since when scandals are hidden under the rug, the corruption index moves at low levels. The fact that scandals are being uncovered in Cyprus is positive and this may strengthen efforts to reduce corruption.
Due to the major financial scandals, it has been decided to implement anti-corruption measures. Are these measures considered satisfactory? Should they have been implemented earlier?
The measures are satisfactory but are designed to discourage corruption from those who cause it. The measures announced by the government are more about the rule of law, more transparency and accountability and constitute the minimum network of protection against corruption. They will not solve the problem completely but if implemented properly, they can create a culture of avoiding entanglement and corruption. These are measures that have been in force in other modern European countries for years.
What do you think are the ways to re-introduce Cyprus in the investment community after the passport scandal and the consequences it left on the country’s image internationally?
The upgrading of the Cypriot economy goes through the economic recovery, fiscal discipline, the proper functioning of institutions, the compliance of Cyprus with international agreements concerning tax evasion and money laundering, transparency and accountability. The passport scandal has escalated due to political opposition, which has elevated it to a major issue, in order to reap partisan support to the detriment of the Cypriot economy.
Lately we have become witnesses of a conflict between institutions and I am referring to the conflict between the Auditor General and the Attorney General. What is your opinion on this rivalry? Do you believe that we are in a period where the Constitution of the Republic must be modernized?
I believe that the institutions exist, but everyone involved needs to understand the limitations of their powers. Institutions should also demonstrate the necessary flexibility in matters of public interest. The Auditor General has a specific role and specific powers and the Attorney General has its own specific role and specific powers. When it comes to public interest, the institutions should consult with each other. There was and there is no reason for any rivalry to exist between the Auditor General and the Attorney General. Finally, political parties must stop adding fuel to the fire, because that is detrimental to the public interest.
A few days ago, millions of euros were transferred in the funds of the political parties as a state aid, a few months before the parliamentary elections but also in the midst of a pandemic. At a difficult time like this, when thousands of our fellow citizens are unemployed and living in financial misery, this allowance has provoked a variety of negative comments. What is your position as a citizen, in our above remark and what is the position of your party?
The financial support of the parties by the government is a one-way street, it is a must, so that they can function as real elements of the Democracy and not become mere pawns of donors, who can contribute money to parties to serve their own interests. If a political party, which has significant power in Parliament, wants to act independently and objectively, then it will not attract contributions and will not be able to function. On the other hand, the government’s financial support to the parties should cover the running costs and those alone.
Mr. Mavrides, you have been a member of the House of Representatives of Cyprus for more than ten years. What are the most important characteristics of a Member of Parliament (MP) in your opinion? And what do you have to say about the code of ethics of Cyprus MPs?
I believe the most important characteristics of an MP are integrity, honesty and ethics. Additionally, knowledge, continued studying and real interest in the problems of society and the common man are also important characteristics. The code of ethics is not a panacea but a step forward. It is an attempt to find the balance that a Member of Parliament must maintain. For example, according to the code, the MP can accept gifts of small value. Gifts can’t be of no value not of great value. In addition, the Member will be able to discuss issues with interest groups but in a transparent manner.
The absentee ballot rate in the previous parliamentary elections was 33.26% (180,645 voters). Do you think that in this year’s parliamentary elections the abstention rate will decrease or increase?
Although the political situation is volatile, and there is a general stance of discrediting politics, I believe that the abstention will be shorter than it was in the 2016 parliamentary elections, because the citizens have now “awakened” and want to strengthen the institution of democracy with their own vote, either to punish incumbent politicians or to elect new politicians. As far as I know the number of candidates in the May elections will be higher than it was last time, and this can translate into more supporters at the ballot box.
By Antonia Diakou