A Decade Long Economic Crisis: Cyprus versus Greece

A Decade Long Economic Crisis: Cyprus versus Greece
Gikas A. Hardouvelis and Ioannis Gkionis
Lead article in Cyprus Economic Policy Review, pp. 3-40, vol. 10, No. 2, 2016


The paper compares the recent economic crisis in Cyprus with the much larger
and still on-going crisis in Greece, traces the causes behind their differences and
assesses each country’s future economic prospects. Cyprus entered its crisis with
less onerous macroeconomic imbalances, yet with less robust financial and real
estate sectors. Cyprus delayed signing its MoU with the lenders but subsequently
delivered quickly on the program requirements, front-loading the fiscal policy
restrictions. Greece reduced its fiscal deficits, yet, after its economy stabilized and
began recovering in 2014, it suddenly adopted in 2015 a very naïve and backwardlooking confrontational strategy with its lenders, which brought a second
recession. Today, at the end of 2016, Cyprus has managed to keep its international
comparative advantages and has the luxury to focus on its long-term growth
strategy, having lost only 5% of its pre-crisis income. Greece, after having lost
over 22% percent of its pre-crisis income, has not yet escaped its crisis, is still
burdened by economic stagnation, an unsustainable public debt and unusually
high tax rates that constrain growth. The two countries share common risks today:
A very weak financial sector with unusually high no-performing loans, and an
unusually low ratio of investment to GDP.

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