In a week or two, Cyprus will have a new president and a new government. The million-dollar question or rather the 17-billion-euro question is: Will this mark a new beginning for Cyprus or will we get more of the same, wrapped in a different colour. This is arguably the most important election for Cyprus since 1974 and possibly since the founding of the Republic in 1960. It is also the first time that the outcome of a Cyprus election is attracting pan-European, and possibly global, interest and significance. Normally, presidential elections in countries with a population under a million, even troubled-countries like Cyprus, would be relegated to the inside pages of world press and go unnoticed. Not so this time.
The heightened interest this time arises from the fact that Cyprus faces the prospect of default while being a member of the eurozone, and has asked for a bailout. Cyprus needs a loan the size of its economy which will bring its debt to 140% of Gross Domestic Product, an unserviceable and unsustainable level. Cypriot authorities vehemently resist the idea of selling state enterprises to lower the debt level and committing part of its future natural gas revenues to service debt obligations.
The government has money to pay salaries only until April and needs a €1.5 billion for a loan that becomes due in June. In the absence of a bailout, Cyprus will default and “cexit” (exit from the euro) which may trigger a contagion and become a systemic threat for the euro. The fact that the Cyprus’ banking sector is 7-8 times the size of the Cyprus economy is part of the reason. Another part is Cyprus’ low corporate tax rate and the “suspicion” that money laundering may have taken place, which concerns the potential lenders, especially big countries, like Germany.
A yet another reason is that Cyprus has discovered, in its EEZ, significant quantities of natural gas, and possibly oil, which can contribute to Europe’s energy independence. To complicate matters Turkey, the aggressive 800-pound gorilla in the area, disputes the rights of Cyprus to this new found wealth and threatens reprisals at the same time that Turkey is a possible route for transporting the Cyprus natural gas to Europe. To counter the threat Cyprus deepened its collaboration with neighbouring Israel and signed up contracts for exploration and exploitation of its gas fields with big companies from big counties like the US, France, Italy and South Korea.
For all these reasons, next week’s presidential election in Cyprus is like no other. The outcome can help resolve all these open questions but it could also prolong the uncertainty and turn the situation into a Greek drama for both Cyprus and Europe. People who followed the unfolding of the Cyprus crisis over the past 3 years to its current crescendo are wondering whether this election will bring about the catharsis and a new beginning for Cyprus or it will be more of the same.
Full Article: A new beginning or more of the same? – Cyprus Mail.