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Eleven lessons from Cyprus’ that could apply Anywhere
Cyprus has paid dearly, and will continue to pay a high price for several years, for the profligacy of its public sector, the recklessness of its banks, and the procrastination of its policy makers in taking corrective measures in the face of the crisis. The jury is still out on whether Cyprus has learnt its lesson, a very expensive one indeed. For other countries, Cyprus’ bitter experience holds many lessons, for which a generous tuition fee has already been paid by Cyprus.
Lesson#1: Control public finances and the size of the public sector. If you cannot trust politicians to resist the temptation of paying supporters and cronies with public sector jobs and salary raises and privileges, adopt a constitutional requirement for balanced budgets and a low ceiling on public debt. Keep the power of public-servant unions in check.
Lesson #2: Know what your bankers are doing; they may not have the country’s best interests in mind; they may not even serve their own bank’s best interests. Without effective corporate governance and strict supervision they may be gambling depositors’ money by putting all their eggs in one basket or taking unreasonable risks or expanding into markets they don’t understand. Don’t be reckless, not even careless about risk exposure. Instead, be ruthless about risk assessment and risk management. Don’t trust the central banker blindly to keep the banking sector sound and solvent, or as former President Reagan used to say “trust but verify”.
Lesson#3: Do not allow your banking sector, or any individual organisation or company to become so big that it is too big to let it fail and at the same time too big to save. You are putting yourself in a no win situation, the economy in jeopardy and sovereignty at risk. Healthy competition, diversification, and proportionality have become bywords for prudence. A banking sector eight times the size of the country’s Gross Domestic Product, as was the case in Cyprus, could neither be left to fail, yet neither could it be saved by the country.
Lesson #4: Do not give away your currency and monetary policy by joining a common currency area such as the Eurozone if you are not able to compete. Invest first in research and technology, innovation and entrepreneurship, cost control and quality management to raise productivity, cut costs, upgrade quality and produce innovative products and services that are internationally competitive. Common currency areas, especially those which do not involve transfer payments from the better performers to the laggards, ultimately benefit those who are able to compete effectively at the expense of the rest.
Lesson #5: Do not allow your labour unions to acquire such strength as to hold a chokehold on vital sectors and the economy as a whole, or destroy the flexibility of the labour market. Learn from Cyprus’ experience with the unions; don’t repeat it. The insatiable demands of the unions especially those of banking employees and civil servants have been protagonists in Cyprus’ drama. Even today, with 16 per cent unemployment and rising and the public and banking sectors buckling under the weight of wage bills and overstaffing, the unions are blocking life-or-death reforms.
Lesson #6: Do not buy the economic tale about natural monopoly, or the social tale about the need to provide affordable services to the poor, or the political tale about sectors of national or strategic importance. State enterprises such as Cyprus Airways or semi-public organisations such as CyTA and the Electricity Authority, have proved to be little more than another vehicle to tax the citizen, to allocate positions and favours, and to share the loot among the political parties, while the customer citizen is stuck with exorbitant bills due to greed and inefficiency.
Lesson #7: Beware of easy credit, bubbles and pyramid schemes. The economic history of the world is littered with stories of economic collapses and catastrophes caused by “ingenious” schemes of buying into easy and quick riches. In Cyprus, first there was the rapidly rising stock prices of the late 1990s inflated by easy credit which in the span of a few years led to collapse and the loss of fortunes by many people. It has been labelled “the stock exchange scandal” and, though nobody was punished, the stock market never recovered, despite the institutional reforms.
Then it was the real estate bubble: inflated by easy credit, property prices kept rising at 20-30 per cent a year; yet no one expected them to stop rising much less to collapse. This came to be known as the “real estate bubble” which burst a couple of years ago. Property prices are now continuing to fall steadily increasing the number of unsecured loans. Another bubble kept gathering steam since the early 2000s and accelerated since we joined the eurozone. The financial and banking bubble was built on high deposit rates of interest, poorly secured lending, attraction of “offshore” companies and reckless investments in Greek bonds and global expansion without risk assessment; it collapsed under its own weight and it is still in a coma.
Lesson # 8: Do not deviate from the iron rule that ties the growth of wages to the growth of productivity; measure public sector productivity, and assess and pay civil servants accordingly. If you earn and spend more than you produce on a long-term basis you are not building a sustainable economy. Sooner or later the economy will collapse, sooner if it is hit by a global economic crisis, as in the case of Cyprus. With the meddling of political parties, the pressure of the labour unions, and the support of parliament, wages and benefits in the wider public sector rose well above productivity, contributing to budget deficit and increased taxation on the private sector, sinking the economy into deeper recession.
Lesson #9: Save for a rainy day. Build an emergency fund, the size of your GDP, as a security against uncertainties, world economic crisis and generally the vagaries of markets and nature. Save in good years for the bad years. If you spend the unusually high revenues in good years on salary raises and overstaffing as well as marginal and unproductive show-off projects, you increase the state’s financial obligations for bad years too without having the means to meet them and you set yourself for deficit spending, escalating debt, and a need for a bailout (or a bail in).
Lesson# 10: Anticipate problems and challenges and formulate alternative strategies. Act early and proactively while you still have time and resources, while the problems are still manageable and you can still set your own terms. Always have a plan B ready. Delays and procrastination carry a heavy price: the problem becomes that much bigger and more pressing, while you lose any bargaining power you may have had to influence the terms of support when you finally resort to it. Cyprus learned this lesson the hard way.
Lesson #11: Establish strong alliances but never forget that in international politics there are no friendships, only shared interests. While this was known since ancient times and was repeated many times in modern history, Cyprus almost blindly counted on its friends and allies in the EU to show their solidarity and run to its rescue. Instead, they were quite unsympathetic administering bitter medicine or “tough love”, as some of us see it. Even our blood brothers, the Greeks, officially have shown little empathy, despite the help from our side in their moment of need. Our interest and theirs in this juncture did not coincide.
Other countries in the European south and beyond should heed the lessons of the bitter experience of Cyprus with its banking and fiscal crisis that brought down its economic edifice, like a house of cards. Avoiding Cyprus’ mistakes can make the difference between a sustainable economic model or a casino-type economy with easy riches alternating with economic collapse.
Dr Theodore Panayotou is director of the Cyprus International Institute of Management (CIIM) and ex-professor of Economics and the Environment at Harvard University. He has served as consultant to the UN and to governments in the US, China, Russia, Brazil, Mexico and Cyprus. He has published extensively and was recognised for his contribution to the work of the Intergovernmental Panel on Climate Change won the Nobel Peace Prize in 2007. Contact: email@example.com
Industrial action in the health service and other parts of the public sector is now threatened following the collapse of the proposed new Croke Park deal.
The country’s largest public service union,SIPTU, which includes 45,000 health service workers, has rejected the ‘Croke Park 11’ proposals by a margin of 53.7% against and 46.3% in favour.
The SIPTU vote, however, is expected to lead to the collapse of the Croke Park Deal extension proposals, as they cannot be sanctioned by the Irish Congress of Trade Unions (ICTU) without the support of SIPTU, which is the largest union in the country.
The IMPACT union, which also represents health service workers, has voted by 56% to 46% to accept the new Croke Park deal.
The Government may now move to legislate for the implementation of pay cuts in the public sector in the absence of overall union agreement on the Croke Park proposals. This would put the Government on a collision course with the unions.
Commenting on the result, SIPTU General President Jack O’Connor said that the vote reflected the sense of grievance among working people and public service workers, in particular, ‘that they are carrying an excessive burden in the post-crisis adjustment.’
SIPTU and the INMO urged the Government not to legislate for pay cuts. The INMO said this would ‘inevitably result in major disagreement and a potential dispute.’
The HSE needed to save €150 million this year from planned pay savings under the Croke Park deal in order to stay within budget.
The health executive’s latest performance report says this sum had yet to be allocated to its budgetary calculations pending the outcome of the public service pay agreement extension.
In the absence of these pay savings, the HSE may be forced to cut services to balance its books.
The ‘Croke Park 11’ measures included pay and allowance cuts of between 5.5% and 10% for those with salaries above €65,000 -and the reduction of premium rates for staff working on Sundays from double time to 1.75 times the normal hourly rate.
Other overtime rateswere to be cut to time and half for those on less than €35,000 and time and a quarter for those earning more than €35,000. Staff currently on a 39 hour week would do an unpaid hour’s overtime.
Basic pay of staff earning over €185,000 was due to be be cut by 10%.
The deal provided for a three year increments freeze for staff earning more than €65,000, those earning below €35,000 faced a three month increment freeze, while those paid between €35,000 and and €65,000 faced two three-month freezes.
It is the first completed ballot on the deal.
The TUI represents just under 15,000 second level teachers and lecturers.
Traditionally, if a majority of ICTU unions accept a deal like Croke Park, those who reject it abide by the majority vote.
However, the TUI executive has decided not to be bound by an overall vote in favour.
TUI President Gerard Craughwell said this could pose a huge problem for the Irish Congress of Trade Unions – particularly if other unions opposed to the Croke Park extension plans follow the TUI line and refuse to accept the majority vote.
The proposals in the Croke Park deal are aimed at reducing the public sector pay bill by an additional €1 billion over the next three years.
The Association of Secondary Teachers in Ireland (ASTI) will ballot its 17,500 members on the deal in the coming weeks.
The union’s standing committee said the proposals from the Labour Relations Commission would worsen working conditions for teachers while also cutting their pay.
“The proposals come at a time when second-level schools are reeling from the impact of the education cutbacks including significant reductions in staffing and resources,” the union said in a statement this evening.
Senior members said public sector workers had already taken a cumulative pay cut of 14 per cent in recent years, while delivering “substantial” savings under the terms of the original Croke Park Agreement.
The union added that the supervision and substitution allowance – worth about €1,800 a year, which would be abolished under the proposals – would have “a disproportionate negative impact on low-paid part-time and temporary teachers” who had come rely on that money.
It also claimed that some aspects of the deal had yet to be clarified, and that it could not recommend the deal to its members while some of its impact remained unknown.
The union has become the sixth, of the 15 public service unions, to publicly recommend a No vote.
The INTO, which represents primary teachers, did not issue a recommendation; the other main secondary union, the TUI, and the university lecturers’ union IFUT are both seeking a No vote.
By Thomás O Cléirigh
The Union bosses are the mafia that keeps the government in power and not the troika .These wolves in sheep clothing are nothing more than the real collaborators doing the biding of the faceless moneymen that allow the union bosses to extract enormous funds from their members and suck the country dry as they or their pals sit on the various guanos boards of course for hefty fees. The Union bosses are taking salaries equivalent to the Minsters of government and they have the perks and pensions to match. These sell-outs have betrayed the workers and the Irish workers are still like sheep following these leaches as they milk the insider system for all they can get.
Workers of Ireland wake up don’t you see these union bosses are part of the problem and are in no way going to rock the boat. They are out for themselves! Get out of these unions or kick out these puppets of the Labour party now.
These same union bosses have stood ideally by as our health services were dismantled ,over the last 5 years they have done nothing for the ordinary man in the street they have watch and done nothing as new taxes were imposed on families to pay for private debts of corrupt bankers .These unions are nothing more than puppets of the political system , a extra insurance the government of the day has against workers going out on to the streets and demanding true democracy just like they have in Iceland. We need people power and not hidden planted insiders who run the unions on behalf of the government of the day.
The unions have abandoned the unemployed and they are out to keep themselves in their plumb top jobs! It is totally immoral that workers should be accepting Austerity while these sell-outs continue to pay themselves lottery salaries. When I hear of old folk dying in each other’s arms because they cannot afford to heat their homes I say it’s time to take the fight to the streets and kick these leaches off our backs now .Every decent worker should down tools and go on a general strike with or without the unions now. No more Austerity do as Iceland did tell the Government and their Union insider pals to get stuffed we don’t need their permission to take back our country from gangsters!
Have you ever wondered why Irish workers are not joining other European Workers in demonstrating against the imposed austerity that is paying the gambling debts of hidden faceless moneymen?
Simple: The union bosses are bought and paid for by the real power brokers who rule over us now!
Jobs not Debt, 9th Febr
ens of thousands of people have marched through cities in Ireland in a massive show of anger against severe austerity measures and high costs of living.
The Irish Congress of Trade Unions,which organized the rallies, claimed more than 100,000 people attended, with some 60,000 marching in Dublin. Demonstrators also protested in Cork, Galway, Limerick, Sligo and Waterford.
Tough cuts were implemented to please Ireland’s creditors in the wake of the country’s banking crisis. It has been relying on a joint EU-IMF loan since 2010.
The “Lift the Burden” march took place despite the Irish government’s recent bank debt deal with the European Central Bank. It saw 28 billion euro worth of costly promissory notes swapped for long-term sovereign bonds.
The union’s General Secretary David Begg vowed that the campaign against the debt burden will carry on until the European authorities fully honor the agreement reached last July to separate bank debt from sovereign debt, The Irish Times reported.
“It would be fatal for people to believe this issue is now resolved and we can all move on,” David Begg said. “At the onset of the crisis Ireland had one of the lowest debt to GDP ratios in Europe. The difference between then and now is due entirely to Ireland socializing bank debt at the behest of the ECB, to save the European banking system.”
I’ve no confidence at all in the deal, it won’t make any difference to ordinary people,” Alfie Murray who marched in Dublin with his 8-year-old grandson, told Reuters. “It’s the next generation that’ll shoulder the cost,” he said.
Financial advisor Marco Pietropoli explained to RT that the Irish per capita have ended up with a far bigger bill than the most countries who had a bailout. “Therefore they are suffering a great deal more.”
Pietropoli says that Ireland’s situation is one of the most difficult in the EU and that Dublin’s holding of the bloc’s presidency isn’t likely to make things any better.
“I don’t think the Irish with the presidency are necessarily going to be able to exert much pressure or much influence to actually change the situation in Europe, because the power remains with the Germans.”
Whenever I campaign for Palestinian justice as a trade unionist I always get a small number of members asking why. Some people take the view that when we have limited resources and time at our disposal trade union reps should simply focus on the home front. Furthermore there are those members who for whatever reason take sides and side with Israel.
The struggle of the oppressed is our struggle. That struggle against capitalism takes many forms and cannot simply be straightjacketed to local issues. We live in a shrinking world thanks to modern communications and globalisation. In the past imperialism was obvious as the sun never set on the British but nowadays imperialism isn’t recognised by everyone. The USA impacts on the world like few other countries ever have and its imperialism lives strong.
Israel was born out of British imperialism and is maintained by American imperialism, including massive aid by way of arms. The suffering of the people of Palestine originates from the same system of economics and government and international relations that trade unionists are fighting every day.
The Palestinian people have suffered much as the Nakba that started on the day Israel was created continues to the present. Their suffering can be seen via the apartheid system that has developed in the boundaries of the country the ruling class calls Israel and it can be seen starkly in the Gaza Strip, blighted by siege conditions for years and now bombardment once again.
If we dare to fight oppression when we see it caused by capitalism then we must also dare to fight it when we see it caused by imperialism and backed up economically and militarily by nations advancing a neo-liberal agenda. For these reasons the struggle for justice in Palestine is our struggle. Fighting austerity and fighting injustice at home whilst standing in solidarity for the rights of those living in Gaza is not contradictory, it fits hand in glove.
The fight continues and our hearts go out to all the people suffering at the hands of Israeli aggression.
Older people are suffering the ill effects of the cutbacks and they stand in solidarity with their children & grandchildren who are also suffering.
This is why the Irish Senior Citizens Parliament will proudly march alongside trade unions and other community groups before Budget 2013 on Saturday next to say “No to Austerity”. We are asking all our members around the country to walk alongside us with dignity & respect to show the Coalition government that we have had enough of the recession, enough of the cuts to income and enough of the threats to the travel pass. The last Budget saw a vicious cut to the means tested fuel allowance thus increasing fuel poverty.
So walk alongside us … but wrap up warm with good shoes and scarves and gloves. This time however we want you to wear different shades of grey to symbolise the many hits we’ve taken. But we are not without hope – wear a sprig of green as well to show that we still have hope. And what about some “Greys in Shades” – wear some sunglasses as well.
Lastly what about some placards? We’ll have some but we encourage you to make your own & bring them with you. Your own words are always best but here are some possible slogans you could have on your placards:
We’ve paid for our Pensions
For a proper health service
Keep Older People Warm & Mobile
Fair Pensions for all
For dignity & respect
For a better, fairer old age
A Fairer Ireland for Older People
HITS – Health, Income, Travel, Security
Hit the bankers – Not the pensioners
Bash Bankers – Not Pensioners
We all stand together
Hands off our Pensions
We’ve paid for our pass
No more austerity
Enough is Enough
No more cuts
We’re all in it together
Why not just shoot us?
Never too old to suffer
No Country for Old Men … or Old Women
March is to be held on the 27th Nov
TOGETHER WITH OTHER civil society organisations – the Spectacle of Defiance and Hope, the Campaign Against Household and Water Taxes, and the Communities Campaign Against the Cuts – the Dublin Council of Trade Unions is organising an Anti-Austerity March on November 24. In advance of the Budget, we believe it is necessary to send a clear message to Government Buildings: not only is austerity damaging to society and individuals – it is resulting in a stagnant economy characterised by high unemployment and low growth.
Since October 26, as part of a 30-day countdown to the march, the DCTU has been issuing daily ‘Reasons to March’. They are all available here – but I would like to focus on four specific issues which contradict the narrative that has dominated political and media discourse during the past few years.
We could call them busted myths. Despite what we are told, the facts are that:
Notwithstanding the EU-IMF deal, the Government has choices
Spending cuts have a worse impact on the economy than tax increases
Low pay is part of the problem – not part of the solution.
Austerity is not cutting the deficit
The Troika has made it quite clear that its primary interest is in the bottom line – that is, reaching the deficit-reduction targets. How we, as a people, choose to do that is a matter of choice. The Government is free to introduce a Budget focused entirely on taxation increases, entirely on spending cuts, or a combination of the two. The only requirement is that the measure in question raises or saves the amount projected.
Unfortunately, the current and previous governments have chosen to focus on spending cuts – and the evidence is that spending cuts do more harm to the economy than other measures such as increasing taxes on wealth and high earners.
Both the ESRI and the Nevin Economic Research Institute have examined the relative impacts of spending cuts vs tax increases. The ESRI found that €3 billion in spending cuts will drive down the domestic economy by nearly two per cent. On the other hand, €3 billion in tax increases will reduce growth by less than o.5 per cent. Because spending cuts are so much more damaging, they are less successful at reducing the deficit. Again according to the ESRI, a package of €3 billion in spending cuts will reduce the deficit by only €1.8 billion. €3 billion in tax increases will, however, reduce the deficit by €2.4 billion.
So the evidence shows that spending cuts are not only socially damaging – they are economically inefficient. Every time we cut a public service, or reduce a benefit, or raise taxes on low and middle income earners, we are taking more money out of the economy and out of people’s pockets – people who had very little to start with. That is why we need to focus tax increases on wealth and high income groups – rather than on those who spend everything they have in the economy.
Which brings us to another reason to make our voices heard on November 24: the claim that, four years into the crisis, we are all still ‘paying ourselves too much’.
That myth, too, is busted by the facts.
Low pay remains a major issue, damaging individuals, communities and the economy, in both the private and the public sectors.
Irish hotel and restaurant workers cost their employers seven per cent below the average of other EU-15 countries. When compared with the average of core EU-15 countries (excluding peripheral countries), labour costs here fall 16 per cent below average. Retail and wholesale workers cost their employers even less. During the last two years, the gap between Irish and other EU labour costs has widened further.
Low-paid Irish workers are near the bottom of the European low-pay league. And that includes low-paid public sector workers. Clerical workers in the public sector have pay levels well below that of other countries measured by the OECD. For instance, Irish clerical workers would need a pay increase of almost 50 percent to reach Dutch pay. And this was before the 2010 pay cuts.
Low pay is not just an issue for the individuals concerned: it reduces the amount of money people have to spend in the economy. And that puts business and jobs at risk.
We know that spending cuts are economically damaging. We know that low pay (and low levels of social protection) are economically damaging.
So it is not surprising that the current economic approach has not worked. It is driving up unemployment, emigration and deprivation while cutting incomes and living standards.
Yet supporters of austerity say this is the price we must pay to get our deficit under control.
But austerity is not even cutting the deficit.
Since the crisis began, depending on the calculation used, there has been between €24 and €25 billion in austerity measures – spending cuts and tax increases. But the underlying deficit (that is, excluding special bank payments and income) has actually increased since 2008. And since 2009, when the big austerity measures started, the underlying deficit has only fallen by just €3.5 billion.
Despite this spectacular policy failure, the austerity cheerleaders tell us we need to cut more. That is because many supporters of austerity are using the crisis for their own political agenda – to cut public services, social protection and public investment. And to cut wages, in the mistaken belief that low wages equate to competitiveness.
The past five Budgets have been driven by false premises – by myths. We’re in a bailout and have no choices. We can shrink the deficit if we shrink spending. We’re all paying ourselves too much.
And the only reason austerity hasn’t worked is because we haven’t had enough of it.
Now, as we come up to Budget 2013, we need to send a collective message to the Government: austerity cannot work. Rather than continuing to shrink the economy and the living standards of ordinary people, we need to invest in growing the economy, putting people back to work and putting more money in people’s pockets. On November 24, we have a chance to make our voices heard.
Michael O’Reilly is the President of the Dublin Council of Trade Unions, and served on the Administrative Council of the Labour Party for ten years.
Austerity has been an economic failure and a social catastrophe.
Domestic demand has collapsed. Five businesses closed down each day in 2011 – and this year’s figures are likely to be worse. 300,000 are unemployed, and many more are underemployed. Over 1.8 million people are left with less than €100 at the end of each month after paying essential bills. One in ten of us is living in food poverty. One million of our fellow citizens are living in deprivation as measured by the CSO – including over 335,000 children.
And these figures would probably be even starker were it not for emigration: in just one year – between April 2011 and April 2012 – a total of 46,500 Irish people left the country.
Behind each of these figures lie individual stories – and increasingly, those stories are of despair.
Communities throughout Ireland see the economic and social consequences of current economic policy every day. They see that austerity does not work – and they know that continuing the same policy will not produce different results.
Newly qualified teachers will also be joining the protest. They are “demanding equal pay for equal work,” the unions said in a joint statement. Their salaries are a fifth less than the starting salary of colleagues, it said. Most newly qualified teachers are unable to find work and will spend the next few year subbing, the statement said.
Teachers will also protest about cuts. Following four years of cuts and with the Budget looming teachers want to “express their concerns and fears for the children and young people in their classrooms,” the statement added
Presidents of the unions will address the rally.