After spending almost seven years in the junk category, Cyprus returned to an investment-grade credit rating, after a review performed by Standard&Poors, the results of which were published late on September 14th, local time.
As is customary, local politicians sent out a real barrage of tweets, celebrating the news. For the most part these are the same people who were saying that rating agencies “have no idea what they are talking about” when we got first downgraded to the junk category.
In private conversations, everyone is quick to give “self-props” for sacrificing part of their well-being all these years, for the greater benefit of the country. For the most part these are the same people who have been pushing their own agenda for more personal benefits all along.
As far as I am concerned, three things came to my mind when I received the alert for the upgrade on my mobile:
- The people who are giving those “self-props” why are they doing so? I mean apart from the fact that they desperately need to satisfy their ego because they have little else to show in life… My point is, that it will likely take up to two years for the government to refinance existing, higher-rate debt, by issuing new bonds to take advantage of the lower interest rates that the upgrade will likely allow us and then divert any “extra” funds back to the society. So, yes, celebrate but really, don’t expect any noticeable changes any time soon;
- Even more importantly, how did this upgrade come to pass? Is it structural, in other words, are there going to be recurring benefits due to reforms? Part of it, yes. The fact that we finally got to rid of that pustule of a bank that the Cooperative was, is undoubtedly a good thing. All of our banks are now monitored by the Central Bank of Cyprus, which in its own turn, is “checked” by the European Central Bank. So, all banks will now operate under the same strict standards, imposed by an independent EU authority. No more favors, nepotism and special treatment. On the other hand, the unions in the banks and public sector remain as powerful as ever, feasting like locusts on what the rest of society produces;
- Finally, part of the improvement in the economy is imported. In other words, we are doing better, because the EU and the world economies are doing better. And so, this begs the question: Are we doing enough, now that things are going well, or are we laying back? The cicada, as Aesop points out in one of his fables, dies in the winter because contrary to the ant, he sits around on branches, singing all day long during summertime, instead of stocking up for the winter. Let’s not forget that Greece, managed to decrease its debt/GDP ratio, three times in the decade before it was finally forced to request international support. In all three cases, these decreases came during periods of an upturn in the world economy and in all three cases, all gains were reversed and then some, once the growth cycle ended. This happened both because the country did not reduce its debt/GDP ratio as much as it could have during the good times, as well as because it didn’t enforce enough structural reforms. In other words, Greece paid (and it still is paying) the price of having laid back too much during the good times.
I fully understand the importance of having a good credit rating, both on a personal, as well as on a state level. And the upgrade is, by all means, more than welcome. But it’s even more important that we reform our country, so that when the next recession hits us we will be the ants. Not the cicadas…