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Tuesday, April 30, 2013

Cypriot parliament narrowly approves bailout deal but plenty of hurdles yet to overcome

The Cypriot parliament has officially approved the bailout deal that the government agreed with its eurozone partners and the IMF. (See here for our previous thoughts on the deal).

A rejection of the deal would probably have led to a Cypriot exit from the eurozone. Given such serious consequences it was an incredibly close run vote with 29 in favour versus 27 against (often for such votes politicians shy away from risky decisions).

We’re yet to get the final breakdown of the votes but here are the early predictions (we will update this with final figures when we have them):

The government is likely to breathe a sigh of relief but it should not view this as the end – it is surely only the end of the beginning at best.

As we have noted at length before, the prospects for Cyprus are bleak. Growth is set to crumble over the next few years, while capital controls remain in place, keeping it at the edge of the eurozone (with close to a separate currency since Cypriot euros are clearly no longer worth the same as euros elsewhere). As recently as last Thursday, the controls were extended for 16 days and despite being eased at points, there is no clear plan for how or when they can be removed (strangely the responsibility for the rules seems to have switched from the Central Bank to the Ministry of Finance while the lengths of the extensions have ranged from 3 days to 16 days at random intervals – not effectively a decisive or clear policy approach).

Despite the vote being approved it is also clear that politics in Cyprus remains fractured. 29 MPs feel strongly in favour of the bailout programme and the associated actions, while 27 MPs were effectively willing to see Cyprus leave the euro rather than implementing the bailout deal. Meanwhile, the rift between the Central Bank and the government shows little signs of abating.

Surely, effective reform and governance will be tough in the future, especially as the anti-austerity feeling amongst the general public rises.

For a taste of this just see the quote from Green MP George Perdikis after the vote:
“A 'yes' from Cyprus's parliament is by far the biggest defeat in our 8,000-year history. Its democratically elected representatives have a gun to their head to agree to a deal of enslavement.” 
The Cypriot government has negotiated a large hurdle but the biggest challenges may yet be to come.


Rollo said...

When you think of the sacrifices the Cypriots made to get independence, you wonder at the stupidity of the following generations who gave it away. A huge defeat of the whole nation. The only solution is to break free, and start again.

Anonymous said...

Cypriots are now officially slaves.

christina speight said...

They've sold themselves into slavery for NOTHING worthwhile. There us no gain at all except not going bankrupt! In fac going bankrupt was precisely the road to freedom after 2-3 months chaos.