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MoU – Memorandum of Understanding or 29 pages of what is wrong with Cyprus by the Trokia.

Date: 14/01/13

The Memorandum of Understanding reluctantly signed by the Cypriot Government and the Trokia of International lenders comprising the EU, IMF and European Central Bank makes an interesting read.

Within the pages of the document it’s plain that Troika officials have tried to address most of the glaring problems that exist in Cyprus today. 

Anybody who has had dealings with the public sector in Cyprus will be relieved to see that the badly need reforms to the sector have already began. Over the years there has been increasing bitterness amongst ordinary hard working Cypriots in the private sector who have seen their income squeezed by economic circumstances beyond their immediate control. In the meantime public sector employees gorge on fat salaries and 2 or 3 pensions while paying little back in. At long last December 2012 and 13th salaries of public "servants" have seen some cuts, but this is only a beginning.

The so-called Semi-state Enterprises, i.e. Cyta, EAC and the Ports Authority, are not up for immediate privatizations, but as debt grows it is inevitable that these organizations will face sale sooner or later. Although all political parties in Cyprus in the forthcoming election reject privatization of what they call “profitable companies” it should be obvious that any company operating as a monopoly on a simple Cost-plus business model cannot go on. The public cannot carry on subsidizing lavish wages in such companies where the average cost per employee comes to 60,000 Euro per year. As competition creeps in all over Cyprus it would of course be prudent for these business to be privatized now while profits are high. 

The opening up of service markets also gets mentioned by Troika. This is an issue we at Cyprus Resales (British Estate Agents) are especially interested in. For too long numerous international companies have been locked out of the Cypriot market. Lawmakers have restricted trade in services to benefit local firms who are plainly out of their depth when faced with international competition. Evidence from other countries in recession is that economic growth will not return at any great speed until inefficient and unviable businesses are put out of their misery and excess capacity is eliminated in various industrial and service sectors.

Of course the property and banking sectors dominate the MoU. A clear road to banking recovery is outlined albeit with the help of over 10 billion Euro of Troika's recapitalization. Loans that are backed up by toxic assets (much of it land) and have not been serviced will be called exactly what they are - Non–performing. Banks will no longer be able to lend to “friends” while ignoring the fact their debt is never repaid.  

In the long term we believe Cyprus will benefit from this root and branch reform of its economy. The full MoU is available here.

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