[MGSA-L] Cypriot economic model Re: MGSA-L Digest, Vol 107, Issue 40
Christos D. Katsetos
cd_katsetos at yahoo.com
Sat Mar 30 13:26:26 PDT 2013
According to N. Chysoloras, "Could things have taken a different turn? Of course they could,
if the necessary political will had been there. Although Berlin was right to point out that
the Cypriot economic model, which was based on the financial bubble, was not sustainable,
the dissolution of this model in the timespan of just a few days, instead of a few years, is bound
to cause more problems than it will solve, given that no alternative plan has been designed, let
alone implemented, yet."
It would be helpful, if Dr. Chrysoloras would spell out the main points of his criticism about the
"Cypriot economic model" and clarify further as to what does he mean by "necessary political will".
In many respects, the economic model in Cyprus is akin to that of other EU members, such as
Luxembourg and Malta, insofar as it is a service-oriented economy with a heavy reliance on banking.
The Cyprus crisis is predominantly a banking crisis, similar, albeit not identical, to the crises
experienced, in recent years, in Iceland and Ireland. Suffice it to say that this does not preclude
a link of the banking crisis with other concomitant macroeconomic problems in Cyprus.
As pointed out in a recent report by the Institute of International Finance, "a credit-driven boom"
during 2004-2008 (based on rapid growth and fiscal surpluses), effectively, masked substantial macroeconomic imbalances, which were incurred prior to 2008. These included, "worsening of
competitiveness, a significant deterioration in the net international investment position, a large
increase in private sector debt," and last but not least, a significant increase in the exposure of
Cypriot banks to real estate and to Greece [see FOOTNOTE 1]. As such, the case Cyprus
is somewhat different from that of other EU countries (with a similar economic model), insofar as
the former sustained, almost concurrently, double hits, i.e., by the global crisis and the Greek PSI.
Indeed, one of the key underpinnings in the pathogenesis of the Cyprus banking crisis is that
the latter is integrally linked to the Greek sovereign debt crisis by virtue of heavy exposure of
Cypriot banks to Greek bonds compounded by an (allegedly indiscriminate) efflux of loans by
(the now-defunct) Marfin Popular Bank, owned by the Marfin Investment Group (MIG),
to Greek financial institutions and concerns (including the enigmatic case of one of its clients,
the Vatopedi Monastery of Mount Athos -- with a loan estimated at 100-170 million EUR).
Hence, rather than engaging in a somewhat tedious repetition of generalities and platitudes,
I wonder whether the EU Correspondent Kathimerini could enlighten us about the extent to which
the aforementioned infusion of loans by the Marfin Popular Bank to Greek (commercial) concerns
(and beyond), has played a role (if any) in the development of the current crisis. Also, in his dual
capacity as a journalist and scholar economist, what kind of an economic model does he envisage
for a small sovereign island state in the Eastern Mediterranean, with a part of its territory being
under military occupation, by a regional superpower, during the past 39 years (and with no end
 Mitov L, Bebee J. Cyprus: Just The Facts (March 19, 2013) Authors: Institute of International
See recent interview of MIG Chairman in the Greek television station SKAI. The MIG Chairman's
remarks (25.52 min onward) against Minister of Economics of the Republic of Cyprus are noteworthy.
See interview of Minister of Economics of the Republic of Cyprus and former chairman of the
Cyprus Popular Bank in BBC's Hardtalk on 17 May 2012.
From: Nikos Chrysoloras <nikos.chrysoloras at gmail.com>
To: mgsa-l at uci.edu
Sent: Wednesday, March 27, 2013 3:15 PM
Subject: Re: [MGSA-L] MGSA-L Digest, Vol 107, Issue 40
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