Democracy or Idiocracy? 

cyprus economy

Author-ImageIn Cyprus, we live in a democracy characterised by government by the people and/or their elected representatives: constitutional guarantees, free and fair elections, a parliament of elected members, separation of legislature and the executive, an independent judiciary, and so on. Nevertheless, neither the functionality of its democratic institutions nor the quality of their various outputs is doing well.

Response to the Cyprus Financial Crisis

In mid-2012, the Cyprus government had sought bailout protection and on 25 July 2012 the Troika (IMF, EU, European Central Bank) had submitted their report and terms in response. However, the AKEL party ruling at that time and many Deputies (MPs) across the political spectrum were very reluctant to agree to the Troika’s terms, as these amounted in their opinion to a radical austerity programme that would be unacceptable to the Cypriot people. So, they procrastinated and sought other sources of bailout funding. A token €2.5bn loan from Russia was insufficient. Still, dum spiro spero, and the political parties in Cyprus awaited a miracle. Parliament witnessed melodramatic tableaux of ‘outraged’ Deputies all trying to outdo their party’s rivals in resisting the ‘evil Troika’, if not the whole notion of a bailout.

Meanwhile, the blustering anti-Troika rhetoric of Cypriot politicians had not gone unnoticed internationally. In response to the worsening financial picture in Cyprus and the antagonistic attitude of the politicians towards the Troika and debt control, the ratings agencies steadily downgraded Cyprus’s borrowing status as a very real threat of default was looming. International borrowing rates for Cyprus became punitive. Our politicians remained defiant. Apparently, many of them thought that nothing they said or did would be taken badly by the markets or have any adverse consequences for Cyprus.

Finally, on the threshold of bankruptcy, Cyprus agreed on 25 March 2013 to a bailout but by this time, and to match the worsened financial state, the Troika’s terms and repayment costs in the Memorandum of Agreement (MoA) with Cyprus had become more stringent than those offered eight months earlier. Clearly, defiant politicians in Cyprus saw their priority as keeping their constituent voters happy at any cost.

Response to the Bailout Conditions

Although Cyprus had been thrown a lifeline on 25 March 2013, it was not long before the pre-bailout defiance re-emerged with new vigour. Angry citizens protested at what they saw as the injustice and humiliation of the bailout and, indeed, the scale and duration of the austerity measures. Absurd proposals were put up to somehow reduce the €10bn bailout and circumvent the Troika-led austerity requirements and the drastic reforms of the structures, over-manning and profligate and archaic practices of the government and public sector as well as the banks. For example, apparently Cyprus’s offshore gas deposits should be used as collateral to reduce the bailout burden, conveniently ignoring that fact that as yet these deposits are still being explored and, even if proven viable, production was still several years away. Predictably, the Troika, as would any competent lender, dismissed such suggestions.

Then came the so-called ‘haircut’ when bank depositors in Cyprus suddenly had to forfeit amounts in excess of €100,000. This unprecedented move, sanctioned by the Troika, perhaps unsurprisingly caused uproar in the population and especially those directly affected. In addition, foreigners with such accounts, many of them Russian, lost large sums with reports of individuals losing €millions.

Accusations abroad that Cyprus had long been a money laundering centre for Russians and that therefore there was a justification for a ‘correctional haircut’ just added to the xenophobic belief of many Cypriots that Western governments are always anti-Cyprus. Apparently, they were only interested in gaining control of Cyprus’s offshore gas deposits (however modest these turn out to be). Having pleaded with the Troika to be thrown a lifeline, once it had been securely fastened the previously drowning man of Cyprus began to lambast his saviours for daring to exercise control over the proper and competent use of the lifeline!

This grudging reluctance to accept the reality of the bailout has not eased. The bailout programme is requiring the wholesale reform of the Cyprus economy, its governance, its infrastructure, its civil service, its public sector, its banks – and moreover in all of these not just their structures and processes but also their culture. As Polis Polyviou alluded to in his official report on the Mari-Vassilikos disaster on July 2011, there had been a relentless pursuit of vested self-interests by cynical politicians and officials coupled with their incompetence, empty rhetoric and ‘a reduced perception of duty and selective observance of morality and legality’. So it was too with the long build-up to the financial collapse but with the added components of the banks and major borrowers such as property developers.

Who Created the Fool’s Paradise?

Decades of incompetence, laissez-faire mismanagement, corruption, fraud and a general ‘what can we get away with?’ culture of greed across the spectrum of government, business and finance led to the current financial mess. The current array of high profile cases such as the alleged CYTA pension fund land purchase fraud and the cases allegedly involving Aristodemos are poignant. It might be argued that the Cypriot population overall was to blame since so many seemed to participate that it appeared that wrongdoing and artful practices were socially acceptable and not really illegal. However, the general population in Cyprus did not generate, for example, the idiotic idea that it was normal to borrow large sums of money from a bank and never be accountable to repay it. This something-for-nothing belief was promulgated both by politicians and the behaviour of the banks towards their borrowing customers who, when failing to stick to their repayments, were not pursued for long periods and sometimes many years. This included ordinary citizens of modest means as well as the wealthy, particularly the major developers.

The bulk of ordinary citizens had long been misled deliberately about the globally accepted principles of liability for loans, mortgages and debts into believing that they could borrow from banks as much as they wanted, regardless of ability to pay and without any fear of having to pay it back! In the universe outside Cyprus, it always has been the case that a borrower is liable for his debts up to the full extent of his assets including his primary residence. On Planet Cyprus, however, society’s leaders such as politicians still show an astonishing equivocation rather than strong leadership on these matters. Few have told the voters the blunt truth.

In the utopian fool’s paradise of their Planet Cyprus, the Deputies and politicians across the spectrum are still holding out for a set of amendment bills to the Foreclosures Bill that would nullify the whole thrust and purpose of the main Bill allow NPL foreclosures on primary residences. These amendment bills should never have been tabled. The Troika rejected them but, nonetheless, they were passed.


Unsurprisingly, the Troika therefore withheld the September 2014 bailout tranche of €400m+. Undeterred, the Deputies continue their defiance despite the next bailout tranche now in doubt and the prospect of the government being unable to pay wages and bills in November. Another government default looms and, yes, the international markets have responded badly as expected.

Why are the government, the parties and the Deputies pursuing vehemently a lunatic principle of legalized waivers for debt defaulters that is indefensible and will also ensure that the banks remain severely handicapped in their post-crisis recovery? Apparently, to them populist vote-retention is far more important than the country’s financial survival. Far better to pander to a brainwashed populace and get their votes than to do the right thing, however unpopular. Party, job and reckless consensus trump national interest and moral integrity.

I would commend to readers the 2006 satirical film Idiocracy, starring Luke Wilson, as it epitomises the level to which democratic governance in Cyprus has sunk.

By Dr Alan Waring

Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. His latest book Corporate Risk and Governance is at Contact

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Dr Alan Waring has 35 years’ experience in risk management. His several books include Managing Risk (1998), co-authored with Prof Ian Glendon, Practical Systems Thinking (1996) and Corporate Risk and Governance published in May 2013. He has presented numerous conference and seminar papers in the UK, China, Iran, Hong Kong, Singapore, Australia, Cyprus and USA.

He has written numerous articles published in e.g. Strategic Risk, Catastrophe Risk Management, Asian Corporate Governance, Risk Management – an International Journal and Cyprus Financial Mirror. As a full time risk management consultant since 1986, he has undertaken client assignments for over 80 organizations in 15 countries across many industry sectors.

He has conducted assignments and written reports submitted to major public inquiries. From 2007-9, he was Adjunct Professor at the Centre for Corporate Governance and Financial Policy in Hong Kong. He is currently Professor at theIoannis Gregoriou School of Management, European University Cyprus.

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