Cyprus appoints communist finance minister to win union support

Cyprus president Demetris Christofias has appointed his close aide and former communist lawmaker Kikis Kazamias as the new finance minister in a cabinet overhaul aimed at propping up popular support amid a major economic crisis and the worst disaster that has pushed the island to regular brown-outs.
Kazamias, a former MP for the Akel party and a member of the European Court of Auditors from 2004 to 2010, is the first communist to take up the post, as the government desperately tries to introduce measures to slash public spending but faces constant objections from the trade unions.
A deadly munitions blast near the island’s main Vassiliko power station on July 11 knocked out more than half of the Cyprus electricity network and has caused irreversible problems to the vital services industry, with regular power and telecoms cuts causing havoc to businesses. The scorching summer heat has also pushed up demand for air conditioners, but has fortunately coincided with the holiday season with many rushing overseas and others limited the use of household appliances.
The coastal tourist areas have remained largely unaffected as the main source of revenue for the economy and the near-broke state, that has resorted to higher borrowing rates in recent weeks in order to service its debt.
Analysts believe that the blast that killed 13 seamen and firefighters compounded the problems in the economy, with growth expected to flat-line by the end of the year, compared to earlier estimates of 1.5%.
The cost of the damage at Vassiliko is estimated from 1 bln to 3 bln euros caused by the explosion of a shipment of arms headed from Iran to Syria in 2009. The 98 containers were exposed to extreme temperatures and started a fire that eventually exploded with a 1.5 megatonne blast created a crater 50 metres wide and 20 metres deep. The damage at the adjacent Vassiliko power station will not be fully repaired until the summer of 2012 when Cyprus takes over the presidency of the European Council.
Kikis Kazamias replaces former banker Charilaos Stavrakis that tried to introduce measures to reduce the state deficit and avoid a bailout.
However, economist Fiona Mullen wrote in the Financial Mirror this week that the sdeficit could shoot up to 9% of GDP by the end of this year, as revenues and taxation dropped and government spending continued to rise unabated.
"The President of the Republic Demetris Christofias has appointed a new cabinet," a statement from his office said, including Kazamias in a list of ministers.
The finance portfolio is the most significant appointment at a time when both the central bank and the island's largest lender have warned that it could become the fourth euro zone economy to seek an international bailout unless there is urgent action to correct fiscal imbalances.
"What I hope is for sensibility and consensus to prevail. The problems affect the whole country – no one is exempted," Kazamias told Reuters after his appointment.
The reshuffle replaces a cabinet which resigned on July 28, bowing to public pressure over the blast, that sharply aggravated financial difficulties, which has suffered a series of ratings downgrades because of fiscal slippage and the exposure of its banks to debt-burdened Greece.
All three major credit rating agencies have downgraded Cyprus in the last few months because its banks are sitting on an estimated 5 bln euros in Greek sovereign debt and its economy is heavily exposed to Greece through trade.
The Democratic Party (Diko) junior partner in the coalition government quit on Wednesday, making agreement on vital economic reforms more difficult and potentially complicating reunification talks on the island.