Three years can be a long time in European politics. For Cyprus, 2013 was marked by street demonstrations, an unprecedented haircut on the deposits of bank customers, and fears that this small Mediterranean island nation could crash out of the 19-nation euro zone.
The crisis, brought about by a financial sector that had ballooned to eight times the size of Cyprus’ own economy, also tested the resolve of the European Union’s leaders, many of whom had grown weary of asking their own taxpayers to bail out other governments that couldn’t manage their banks or their own finances.
In March 2013, Cyprus would become the fifth member of the euro currency bloc to be bailed out by the European Union. But the E.U. leaders also wound up taking a novel approach, agreeing to a three-year bailout only if the island’s own savers picked up a piece of the tab. The result: Anyone with more than €100,000 in deposits in the bank saw part of their savings seized.
Dutch Finance Minister Jeroen Dijsselbloem at the time controversially called it a template for future banking crises, and as of this year, the so-called “bail-in” of a bank’s creditors and depositors in the case of a severe crisis has even been enshrined into E.U. law.
Now, as the European Union’s bailout program for Cyprus nears an end, an impressive calm has prevailed over the island, coupled with an unexpectedly robust financial and economic recovery.
Harris Georgiades, the country’s finance minister, told Handelsblatt Global Edition in an interview how Cyprus managed to keep itself together the past three years, and whether it really could serve as a role model for other European countries in crisis.
Handelsblatt Global Edition: Cyprus’ three-year aid program with the E.U. and IMF will soon be coming to an end. What has been the outcome for the country’s economy and meeting the E.U.’s budget targets?
We shall complete the support program as scheduled, at the Eurogroup meeting in March, and shall not be requesting an extension. Our attitude is that ‘we can take it from here.’ The Cyprus crisis had several manifestations: a recession, a fiscal crisis and a banking crisis. Since then, there has been good progress on all fronts. The banking sector has been restructured and recapitalized. The public finances have been consolidated. We had a deficit at an unsustainable 5-6 percent of GDP annually which we eliminated almost fully (0.2 percent in 2014, 0.5 percent in 2015, with a similar forecast for 2016), and a primary surplus of around 2.5 percent which we intend to maintain. Public debt is now on a downward path. On the real economy, we are now out of recession. The economy grew in 2015 by 1.6 percent – not terrific, but the best for seven years, and at the euro zone average.
That sounds like an advertisement for the E.U.’s program of austerity-based recovery. How have you managed that, and should it serve as an example to others?