Cyprus finance minister paves way for better regulation

Q: What is your assessment of the state of the Cypriot economy at this moment? Are you out of the danger zone and what is the way forward?

A: Yes, actually, that could be a very accurate description of the situation. The danger zone is behind us. The climax of the problems in the banking system and the public finances was quite dramatic and there was very clear danger of an outright collapse of the system. We are out of that danger. The economy is still seeing negative growth rates and is in quite deep recession, and that is arguably an inevitable consequence of the correction.

Despite very real and serious problems relating to the recession, which include still-rising unemployment, we are in the correction and stabilisation stage. Already there are signs of resilience in the Cypriot economy and these are better than expected. Even the recession itself is not as bad as was expected. Key sectors of the economy are operating more or less as usual, such as the tourism industry, the shipping industry and even the business services sector, which was expected by some to collapse entirely. It is adapting and refocusing. We are not interested in presenting a picture that is [unrealistically] rosy. On the contrary, we acknowledge what the problems are, we know what needs to be done and we are doing it.

Q: As finance minister, you have had to take some tough and not necessarily popular decisions. Have people bought into what you need to do?

A: I think public opinion acknowledges that decisions might not be popular but they are necessary and I am very satisfied with the overall reception to our policies. I do not want to make comparisons with other countries, but it is obvious that we have had no strikes, no mass demonstrations, and most of the key decisions and pieces of legislation necessary for the implementation of the programme [have been approved] by parliament, either unanimously or with a majority. So we are on track and this relates primarily to the fact that the people of the island realise what went wrong and what needs to be done now to rectify the situation.

Q: How might the crisis reshape Cyprus's role as an international financial centre?

A: I hope it will reshape it because we are very interested in having a financial centre that is better regulated, better functioning, probably smaller – but that is not bad in itself – and one that continues to provide an excellent level of services. That is where we should focus, on quality services in the financial and business sectors.

The basic elements that made Cyprus a very good destination for business remain. The tax system remains competitive, the human capital is skilled and diversified, the legal and administrative structure is quite good and we are improving it.

We are turning the crisis into an opportunity to make things even better for business and potential investors. Our government, which I would describe as pro-business, wants to facilitate enterprise and investment, and we shall be clearing the way for business and investment. 

Q: How are you working to repair the damage done to the banking system?

A: Our system has undergone shock treatment. It was a textbook case of shock therapy. And that is not without repercussions or side-effects, either in the banking system itself or in the real economy. But we are doing the job. We are restructuring, organising and recapitalising our banking system. We are enhancing supervision structures and requirements, and there is movement on all fronts in the banking system. We have had positive developments in the past few weeks and I think we will have more positive developments in the next few weeks in various banking institutions. So I am optimistic.

We will soon have a banking system that will be smaller, but it will be better for its customers and better for the local economy. It is going be smaller, but better functioning, better regulated and much better capitalised. This is the time of the rebirth of the banking system and all our energy is behind this effort, considering the pivotal role of the banking system in the economy. 

Harris Georgiades is the finance minister of Cyprus.