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A Decade Long Economic Crisis: Cyprus versus Greece

A Decade Long Economic Crisis: Cyprus versus Greece

Auth. Gikas A. Hardouvelis, and Ioannis Gkionis
Cyprus Economic Policy Review, Vol. 10, No. 2, pp. 3-40 (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.

Keywords: Cyprus, Greece, crisis-comparison, macroeconomic imbalances,
banking-crisis, NPLs

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