The government of Cyprus will rely on a combination of austerity measures and growth programs to dig its way out of a financial crisis that has forced it to turn to its European Union partners for aid, the Cypriot ambassador in Washington said Tuesday.
“We need to take measures to cut budget deficits and debts, but if we do that in a context where you do not pay attention to the need for growth, you are fighting a losing battle,” Pavlos Anastasiades told editors and reporters at The Washington Times.
“You have to have an austerity program together with a growth-based program so that you have the resources to fund other programs,” he said.
Cyprus had a budget deficit of 6.4 percent at the end of last year. Mr. Anastasiades said his government is committed to bringing this down to 2.4 percent by the end of next year.
“We are very much aware of the need to cut the deficit, but without ignoring the need for continuing growth,” Mr. Anastasiades said.
In European nations stricken by the financial crisis, leaders have been forced to rethink a strategy that relies solely on austerity measures. There is little to show for this belt-tightening besides an irate citizenry.
In France, President Francoise Hollande, a Socialist who ran his campaign on an anti-austerity platform, defeated incumbent Nicolas Sarkozy, an austerity advocate, in elections in May.
Everything on the table
Mr. Anastasiades said that in terms of austerity measures, his government will “cut things that are seen as not necessary.”
“Everything will be on the table,” he added.
Cyprus last month became the fifth country to seek a bailout, joining Greece, Spain, Portugal and Ireland. Cyprus finds itself in the situation because its banking sector was exposed to debt-crippled Greece.
Austerity plus growth
The failure of an austerity-only approach has brought about a rethinking in Europe.
At a meeting in Brussels last week, Italian Prime Minister Mario Monti successfully nudged German Chancellor Angela Merkel to agree to a plan that would allow new bailout money to recapitalize struggling banks directly rather than channel the funds through governments. Mrs. Merkel, like Mr. Sarkozy, has been a strong advocate of austerity measures.
Under the agreement in Brussels, the 17 EU nations that use the euro currency can receive financial aid without first agreeing to tough austerity measures, provided they comply with the European Commission’s budgetary rules.
“Italian Prime Minister [Mario] Monti has been leading, in many respects, the drive to rebalance the effort so that due importance is given to growth and not just to austerity,” Mr. Anastasiades said.
A delegation from the European Commission, the European Central Bank and the International Monetary Fund this week started talks with the government in the Cypriot capital, Nicosia, and banking authorities to determine the scope of the bailout.
Cyprus may need as much as $13 billion, more than half the size of its economy, according to some reports.
Mr. Anastasiades said it would be premature to put a number on this aid.
Cyprus also is looking to Russia and China for help.
“Russia and China are obvious candidates. … If they have the funds and the willingness and the terms are favorable and acceptable to us, then, yes, we will consider that,” Mr. Anastasiades said.
Cyprus, like many other countries in Europe, is facing runaway rates of unemployment in addition to a crippling financial crisis.
The island nation, which boasted an unemployment rate of about 3 percent until three years ago, now has a jobless rate that has shot past 7 percent.
Ambassador still optimistic
Cyprus was split into an internationally recognized Greek-speaking south and a Turkish-speaking north in 1974, when Turkey invaded following a coup by supporters of a union with Greece. Turkey does not recognize Cyprus as a sovereign country.
On Sunday, days after it sought financial aid from its eurozone partners, Cyprus assumed the six-month rotating presidency of the European Union.
The government in Ankara has refused to have anything to do with the EU while Cyprus holds the presidency.
An already tense relationship between Cyprus and Turkey came under further strain this year when Cyprus began oil and gas exploration in the Greek Cypriot part of the island.
Cyprus has a sovereign right to explore for natural resources within its maritime zones; however, its “unilateral start of exploration is a violation of the pledge to share natural resources, and undermines the already fragile reunification talks,” according to the Brussels-based International Crisis Group.
Mr. Anastasiades said Cyprus is playing by the book.
“Cyprus has been very deliberate in moving ahead with its gas and oil explorations in accordance with the letter and spirit of the U.N. Convention on the Law of the Sea,” he said.
He was hopeful that the discovery of vast energy reserves will serve as a catalyst to restart talks to reunify Cyprus.
Those talks have stalled since Dervis Eroglu assumed the presidency of the Turkish Republic of Northern Cyprus in 2010.
“Since Eroglu assumed power, we have not seen any progress whatsoever; in fact, we have seen backtracking,” Mr. Anastasiades said.
But, Mr. Anastasiades, who describes himself as an optimist, said: “We will not give up.”
“The commitment on our part to … make the talks succeed is absolute. There is no priority greater than that,” he added.
• Ashish Kumar Sen can be reached at asen@washingtontimes.com.
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