Cypriot banking under the Troika
The IMF is currently praising Cyprus for its efficiency in pursuing the Troika’s stabilisation programme, at least with respect to public finance. It appears that the Cypriot government will deliver on the target of 7% fiscal adjustment over 2013-14. It has even been announced that the primary deficit for 2014 will be 3% of GDP instead of the IMF projected 4.25%.
A successful programme then? Not according to research currently undertaken by Research on Money and Finance (RMF) in London in conjunction with Prometheus Research Institute in Nicosia. Leave aside the implications of such ferocious austerity for output and employment – GDP will fall by at least 8% in 2013 and probably 4% in 2014, while unemployment is already at 18%. The real problem with the Cypriot economy has always been its banking system rather than public finance. Indeed, fiscal imbalances have been caused by the financial crisis generated by a hugely expanded banking system. What, then, has the Troika brought to Cypriot banks?
The Troika programme has entailed the resolution and merger of the two largest commercial banks, i.e., Bank of Cyprus and Laiki Bank. In effect, Bank of Cyprus has taken over the weaker Laiki, [...]