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The government may be a bit upset at the slow pace of events at the Bank of Cyprus, but it does not seem to be pushing for a speedy return to normality, with thousands of small businesses suffering from lack of money supply in the market.
Across the continent, on a different island where, too, its two biggest banks were bailed out five years ago, the British government, politicians and the business community are pressing the 82%-taxpayer-owned Royal Bank of Scotland not to conserve its cash and shrink its lending, after the Bank of England extended the funding for lending scheme (FLS) to encourage the small business loan market.
RBS already claims more than 40% of small and medium-sized business lending and with Lloyds, the other state-owned bank, they dominate the scene, setting loan criteria, charges and penalties.
RBS needs to make money to repay the government bailout and this can only be done by lending. But it has also adopted a more risk averse strategy, turning away risky SMEs where borrowing has shrunk 3% year on year.
The second biggest mistake by the Central Bank of Cyprus, after it blackmailed parliament to accept Laiki’s resolution, which many sane economists have argued against, was that it shut down the supply of cheap business funding by closing the tap on all money supply. The delay in introducing capital controls and the drip-pace of easing these regulations means that the market has been drained of any cash as depositors were terrorised into withdrawing any amount they had at a rate of 300 euros a day.
The Central Bank Governor and the senior mandarins are expendable. They are here today and gone tomorrow. But if small businesses do not get access to affordable funding very soon, many enterprises that are competitive on the national and international level will simply disappear, never to be replaced by other Cypriot businesses.
Announcing half-measures to re-employ some 6,000 people in the tourism sector (many of whom are seasonal and would have been called back by the hoteliers anyway) may solve part of the problem. Subsidising the re-training of young graduates also helps, but not the unemployed over-30s.
With the EIB announcing some 100 mln euros in new lending last week and the Eurogroup/ECB expected to give the green light to 3 bln euros in aid money, these funds should be pumped into the market immediately, either in the form of emergency development projects or directly to finance cheap loans to SMEs.
If these funds are not properly utilised, six months from now we will back where we started, with 6,000 from the tourist sector out of work, young graduates chasing a handful of new vacancies and the thousands of unemployed remaining unassisted, at home with no pay.
