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21 October 2016

The Main Economic Challenges for Europe and the World in 2017


Ladies and Gentlemen,

I am delighted to be here today, at the Limassol Economic Forum, and to have the opportunity to briefly address such a distinguished audience.

I will do so in the hope that I will contribute to what I am sure will be, a very stimulating dialogue led by the distinguished speakers and panelists who have gathered here today.

Allow me then to pose a question:

What is the link which connects the rise of Donald Trump, the Brexit vote and the near-exit of Greece from the Eurozone a year ago? What is it that constitutes a major challenge for Europe and the World, threatening everything that the liberal world order represents? And what is, in fact, the single most important risk factor which could derail the hard-won recovery of Cyprus?

There is a common answer to all these questions. It’s populism.

Ladies and Gentlemen,

We are facing a real and present danger: the rise of an irrational, demagogic, Eurosceptic, anti-liberal populism.

This populist challenge comes both from the extreme right and the extreme left. The populist mix varies from country to country, is often contradicting and self-conflicting. But there is also much in common usually including, for instance, protectionism, as a direct challenge to globalization. In this way populists attempt to tap into those segments of the population who feel that they have been left behind, or lost out to globalization or probably not benefited enough as others.

If for a moment we step back to 1989, at the time of the historic triumph of liberalism, we will recall that it was the thinker Francis Fukuiama who declared the “end of history” referring to the fact that no ideology was left to challenge democracy, free-markets, globalized co-operation.

Fast forward to 2016, and its seems that history has stormed back with a vengeance. And liberalism needs to fight its ground all over again.

Let me clarify that by referring to liberalism I am not necessarily referring to the European centre-right or to party-political lines. In fact, I believe that one of the most effective proponents of liberalism today is Justin Trudeau of Canada who is considered centre-left.

But I am referring to the need to make an effective and enlightened case in favour of the flow of goods, ideas, capital and people, as essential elements for prosperity. And to take a principled stance in favour of tolerance and compromise which offer the necessary conditions for people to realise their full potential.

Ladies and gentlemen,

We should also be ready and willing to acknowledge our faults. Economic policies should indeed become more inclusive, to ensure a broader distribution of prosperity, and to be less biased towards pressure groups whose interests are inevitably more narrow.

And when it comes to the European integration process, it has to be said that narrow technocratic politics, obsessed by process has reached its limits.

Further steps in the direction of European integration and especially on European economic policy should be well-thought, cautious, and should strive to make our economies more efficient, competitive, adaptive and less bureaucratic.

And more than anything, they should emerge through a transparent political process, with unquestionable democratic legitimacy.  The perception of decisions and guidelines emerging through obscure processes, even though exaggerated, should be tackled.  

The Brexit vote should act as a wake up call. And I am referring to the vote because I actually consider this, the vote, as more troubling than the actual notion of a member-state leaving the EU. In a way the vote was highjacked by populism, and became an ill-defined, opportunistic protest vote, but one which we cannot simply ignore or dispel.

Ladies and Gentlemen,

As I have already mentioned, it is my view that irresponsible populism is also the main obstacle, the real challenge to the further recovery and growth of the Cyprus economy.

It is widely acknowledged that we have come a long way since the climaxing of the crisis back in 2013. We have exited the recession, we are expecting this year a growth rate nearing 3% of the GDP which will be amongst the highest in the EU, unemployment has started to come down, we are operating with a essentially balanced budget since 2014, the banking sector has healed to a significant extent and crucially, confidence has been restored.

It is probably less understood that we were only able to do so because we took difficult but necessary decisions, which cannot and should not be reversed.

For instance, our public sector cannot sustainably spend more than it earns. Public expenditure and the public sector payroll cannot be on a continuous upwards trend, irrespective of the performance of the economy. Welfare cannot be fair and effective if it is offered without credible criteria and control mechanisms.   

Our banks, cannot be expected to offer loans without an adequate and strict evaluation of the ability of the borrower to repay.

And our economy cannot retain and enhance its competitive edge without a never ending, permanent reform effort.

And I would not be honest if I said that I am not concerned by what could be considered as a tendency to go back to the unsustainable practices of the past. It is easy to appear willing and ready to satisfy every need and want. But it is not responsible and politically it is short-sighted.

Because it should be clear that every time we succumb to the pressures of populism, every time we give ground, every time that we fail to take a cool-headed rational decision, every time we abandon the path of responsibility and reason hoping that this will diffuse the pressures, we are in fact nurturing the best of populism until one day it runs us over. 

So we should resist, we should never take history for granted, and we should never let up.