Interview with Chrysanthos Manolis
Unlike other countries, European and other, in Cyprus we have not been accustomed to hearing well-known academics publicly question the neoliberal model of economic development, as it has been adopted and applied in recent years in the EU as well. However, with Cyprus largely absent, for a possible change in the architecture of the Eurozone and the Stability Pact, we spoke with Professor Andreas Theofanous, President of the Cyprus Center for European and International Affairs and the Department of Political Science, Government and Government .
According to Mr. Theofanous, the consequences and realities of the pandemic pushed decisively to challenge the neoliberal model in the wider European and international context. Tough fiscal discipline and fiscal prudence are different, he points out, advocating a philosophy of discretion and flexibility, which will be based on the real economic conditions of each period. As an academic, he emphasizes the need to look carefully at the problems facing the younger generation, and in particular the lack of a sufficient number of quality jobs, relatively low wages, high rents and the high cost of housing.
From a recent article by you, Mr. Theofanous, in Economic Liberal, on 30/1/22, we were impressed by your report that “in the current situation, it is necessary to look for a new model to replace the Neoliberal Model, which unfortunately contributed to increasing inequalities at various levels and consolidating a distorted value system, the main features of which are fierce competition, unbridled individualism and the deification of excessive profit. We would like you to develop this point of view somewhat. What options does Cyprus, as a member of the EU and the Eurozone, have for a model different from the neoliberal one?
First of all, I would like to point out that the challenge to the Neoliberal Model is taking place in the wider European and international context. In relation to Europe, this debate takes place both at the level of states and at the level of the intellect. France and Italy have already spoken out in favor of a new approach to fiscal policy and the Stability Pact.
It was the consequences and realities of the pandemic that pushed decisively towards this challenge to the Neoliberal Model. Among other things, it became clear that, first, the nation-state is an important player in the international system and, second, that it has a decisive role to play in the wider socio-economic development. In relation to the latter, let me remind you that this was a key pillar of Keynesianism School of Thought, which the Neoliberal Model had set aside.
I note that in several EU countries the medical infrastructure had serious gaps when the pandemic came. And one of the main reasons for this situation was the harsh austerity policies that had been imposed.
I take this opportunity to stress that the Neoliberal Model I of the last two decades of the 20th century has not been as harsh as it has been in recent years. Let me remind you that the Neoliberal Model I argued that excessive public spending should be reduced, there should be less intervention, lower taxation and incentives to strengthen supply at all levels. This philosophy resonated with the middle class in the United States, Britain, and other countries. Politically expressed mainly by Ronald Reagan and Margaret Thatcher. And the President of the Kingdom took a lot of evidence from this economic approach. An illustrative example is the tax reform he promoted then, with very positive implications for the Cypriot economy.
But the Neoliberal Model (II), as expressed and exemplified by Germany in recent years, has taken a much tougher line. Among other things, strict fiscal discipline, the shrinking role of the state, the deification of the market and the underestimation of the importance of solidarity have contributed to serious socio-economic problems throughout Europe. For the countries of Southern Europe, the problems were even greater. That is why it should be set aside and replaced with something new. In this connection, I emphasize the importance of encouraging private initiative, modernity, as well as the strategic, social and arbitrary role of the state. In addition, the principle of solidarity must be of particular importance.
In the same article, you pointed out that in Cyprus, unfortunately, the discussion that took place and is still taking place in other European societies did not take place, regarding “the future and the form that the Stability Pact will take”, Germany's insistence on the existing structure of the Eurozone architecture and the restoration of fiscal discipline “but also in the different positions of countries such as France and Italy, which favor a new philosophy, which allows fiscal relaxation, discretion and consequently its diversification philosophy of Eurozone architecture “. What do you think will be the outcome of this dialogue in the EU and what position should the Republic of Cyprus hold?
Unfortunately, this debate never started in Cyprus. And during the Memorandum the government followed the instructions of the Troika with dedication. I believe that there was room for maneuver and differentiation that would lead to better results.
Hard fiscal discipline is one thing and fiscal contemplation is another. Fiscal policy cannot be disconnected from the broader economic conditions. When a country is facing a deep recession and a policy of strict fiscal discipline is imposed on it, the recession will undoubtedly intensify and turn into a deep crisis. This also happened in the case of Greece, where the country during the stone years of the Memoranda lost about 25% of GDP, as well as more than 600,000 Greeks, mostly young people, who sought opportunities in other countries. While Greece had structural problems that needed to be addressed, the prescriptions given were disastrous. This was recognized a posteriori.
There are many indicators that we must constantly evaluate, such as: unemployment, inflation, budget deficit, public debt, inequality, demographic data, economic growth, trade balance, balance of payments, investment, etc. Each indicator has its own importance. Failure to accept harsh fiscal discipline does not necessarily imply fiscal impunity. On this subject, I advocate a philosophy of discretion and flexibility. When there is a recession it is possible to have budget deficits to support economic activity as well as social cohesion actions. In times of high economic growth and full employment it is imperative to have balanced or even surplus budgets.
Given all the facts, I am convinced that eventually there will be differences in the wider architecture of the Eurozone. Cyprus must understand the stakes and take a stand in favor of change. Despite the small size of our country, we must also intervene in the big issues.
The architecture of the Eurozone influences a lot of economic data in the wider economic environment. In addition, each country has its own peculiarities.
Especially for Cyprus, what would you say?
In the case of Cyprus, among other things, it is important to look carefully at the problems faced by the new generation. I note the lack of a sufficient number and quality of jobs, the relatively low wages, the high rents and the high cost of housing. Dealing with these problems requires comprehensive approaches. I would also like to mention the field of education, which is a priority for every society. Knowledge as well as critical thinking is especially important today. In relation to higher education, the existence of a “critical mass” is crucial. Therefore, the state should provide incentives for mergers, so that we have a smaller number of universities, which will be of better quality. The same goes for colleges. With such a policy, Cyprus can achieve its goal and become a regional academic center. Otherwise and taking into account all the data, there will be serious problems.
In addition, it is important to take into account the need for interconnection with the labor market, as well as major technological changes, and to act accordingly.
Would it not be dangerous for the fiscal stability of the EU countries in the coming years, the continuation of a fiscal looseness, given that already, during the two years of the pandemic, there was already a serious increase in public debt as a percentage of GDP? To what extent do you think this fiscal and monetary easing “feeds” inflation and ultimately undermines the incomes of the lower and middle classes?
Without the fiscal sluggishness of the last two years, the results would have been much worse – disastrous, I would say, at all levels. Even public debt as a percentage of GDP would be higher with a policy of fiscal discipline, as many economies would collapse.
As the recovery continues, the aim is to have fiscal deliberation. It is possible to have deficit budgets for the next period in a smaller size (eg 1.5% instead of 2.5% or 3.5%). When conditions allow, we can have balanced budgets and, if necessary, even surplus conditions.
Existing inflationary pressures are not just a result of expansionary fiscal and monetary policy. It is also the result of distortions in the supply of products and services, caused by the pandemic. I believe that over time things will improve.
Parallel steps for normalization of relations with Turkey
Although we are the financial department of the Liberal Party, I can not help but ask your opinion, Mr. Theofanous: How important will the Cyprus issue be in these elections, given that we are going through a very serious and prolonged impasse, from which it seems unlikely that we go out, especially in the pre-election period.
The Cyprus issue is a sensitive issue, as it is an existential issue. Given the positions of the Turkish side, society does not have high expectations on this issue. At the present juncture, the majority is content with no deterioration of the status quo. Therefore, the focus is on socio-economic issues and on tackling corruption and entanglement effectively.
I take this opportunity to emphasize that we must look at these dilemmas decisively. And in the Cyprus issue, it would be a mistake to remain static and cling to ideological approaches.
I have made specific suggestions on this. These include proposing key pillars of a federal state, as well as an evolutionary course. I understand the difficulties but I consider such a policy necessary. Having in mind an integrated strategic approach, I propose, in addition to Confidence Building Measures between the two sides in Cyprus, parallel steps for the normalization of relations between the Republic of Cyprus and Turkey. I consider the latter crucial. For example, the implementation of the Ankara Protocol will have very positive developments. All this requires the support of forces capable of influencing Turkey, such as the United States, Russia, Germany and the United Kingdom. The philosophy I propose takes into account all these facts. I am convinced that, despite adversity and difficult circumstances, such an approach will help our side in many ways.
The election and the big financial issues
We are in a pre-election period, which will in fact be prolonged. The ruling party has already made its choice, the opposition is entering a process of dialogue. What issues do you think will draw the attention of candidates and voters in this election campaign? Is there room for big financial issues? Do you think there will be a capable and convincing opposition and an attractive economic counter-proposal from the opposition for the course that the Cypriot economy should take in the coming years?
Public opinion is tired and frustrated by the political system. Let us not forget that in the recent parliamentary elections the losses of the two largest opposition parties, AKEL and DIKO, were greater than the losses of DISY. In short, while the people disapproved of the government, at the same time it was considered that there was no convincing alternative proposal. This is what the opposition is asking for today.
In addition, citizens feel uncertainty and insecurity about tomorrow, as a result of many factors. It is the occupation and the excessive demands of the Turkish side, the difficulties in the socio-economic development, the entanglement, the corruption, the customer relations and the lack of a compass. There are also everyday problems. Citizens want higher wages to meet their needs, as well as an efficient and just state. A state of equality, favor and meritocracy. A model state.
While the pre-election period has begun early, we have not yet seen the deepening of the dialogue and the submission of a comprehensive proposal by the political forces. It will be a serious problem if at the end of the road the citizens consider that they are called to choose the least evil.
The energy crisis and the strengthening of relations between the EU and Russia
How concerned are you, Mr Theofanous, about the energy crisis in the EU, the bad relations between European countries and Russia, which is a major supplier of gas to Europe, and the deteriorating situation due to the crisis around Ukraine? How much is the European economy threatened by the energy crisis, the questionable security of energy supply, given the decisions on energy transition and the dramatic reduction of greenhouse gas emissions, which seems to have a serious impact on rising prices and the energy poverty of millions of Europeans?
Of course, energy issues have their own significance in the political and wider socio-economic development. Russia must belong to the European security architecture. This position is embraced not only by Greece but also by other EU countries. I also note that Germany is distancing itself from US policy, as the supply of energy from Russia is extremely important for Berlin.
We need to look at these developments realistically and support policies that not only do not lead to price increases but instead to contain and reduce, where possible. In this sense, I am concerned about any excesses – even those related to green growth, as in some cases they lead to a significant increase in costs.
In short, I think it is important to strengthen relations between the EU and Russia, with all that that entails, and to take a step-by-step approach to green development. In addition, a process of de-escalation of tension at regional and global level is required. Such a situation will lead to increased production and disposal of energy and other products, with positive results. Of course, Cyprus can not play a decisive role in this direction. But can the EU.