A Back Pain and The Light at the End of the Tunnel

Disclaimer: this post is written by an optimistic person

Before reading this blog you should be made aware of two facts that decidedly changed my outlook on the brightness of our financial future. Firstly, I found a two euro coin on my way to work today which I have unashamedly appropriated and used to buy a small latte which in turn started my day on a bright and positive note. Secondly, my 6-year old son scored three goals in a game of football thus allowing me to hope that if all else fails I might have a budding Messi in my family tree who will earn enough money to ensure my old age.

So with my personal financial future ensured I am decidedly more sanguine when it comes to my country’s. My optimism is partly supported by facts (but only partly) and more so from anecdotal evidence which many times are more accurate than all the facts in the world (two examples of this come to mind… the first, from George Soros, who famously admitted that he used the onset of acute back pain as a signal that something was wrong in his portfolio while the second comes from the 1929 market crash when Joe Kennedy decided it was time to get out of the stock market not because of any statistics or indicators (i.e. facts) but because he saw that even his shoe-shining boy had started giving out market tips)

And so I invite you to look at the future with some optimism. Let’s back this claim a bit….

Exhibit A is the economy’s aggregate performance in 2013 measured by its GDP. Almost everyone is agreeing that we will end the year with a contraction of 7 to 7.5% which is markedly lower than the 8.7% the troika was predicting and much lower than the 12% Moody’s was predicting just two months ago in October (actually this says more about Moody’s than it does for Cyprus). It is also much lower than what most of us (and I include myself in this category) were predicting back in early April 2013 when we were still shell shocked from the Eurogroup events. In plain words, the economy, as a whole, has done much better than what we were expecting. Now, I expect some of you will respond and say, yes, but just wait and see what will happen in 2014 which is when we will see the real teeth of this recession. I worry about that as well. I worry that maybe 2013 was not as bad because a lot of the pain has been postponed or pushed to 2014. But when we think of that we should also ask ourselves if that is the case, why did we not predict it back in April or May? Are we a bit like the doomsayers that predict the end of the world on a specific date and when that date comes and goes instead of admitting they were wrong and shutting down shop they come up with all kinds of imaginative excuses why the actual end-of-the-world date was not the one they originally said but one that is sufficiently and conveniently far into the future to allow them to live and fight another day?

Correlated to the above is the government’s fiscal performance. Again, it is better than expected and I believe the reason is two-fold. One has to do with the fact that somehow collectively as a country we decided that even though many of us had every reason not to pay our taxes most of us choose to do so. The property tax is the best example. I was genuinely surprised on the high percentage of people that have paid this tax. But I believe it speaks to a broader point. That as a country we seem to understand (or at least we behave as if we do) that in order to get out of this mess we have to pull our collective weight and in many cases this means paying our taxes. The second reason is the performance of the government. I am always weary when someone sings the praises of a certain politician or government but I think most people acknowledge the really great work done by Mr. Charis Georgiades who has led the charge, gained the respect of our international lenders, the respect of the social servants who work for him and has brought results. By many accounts of people who are around him, he is methodical, efficient, patient and very importantly, understands that he does not know everything and listens. He also understands the tough times that lay ahead which is evident in the strict 2014 budget that he has put together. In some ways, the future of our country is in his hands and I for one I am glad of that.

Equally important to my optimism is the reaction of the people in the private sector and most importantly its leaders. Talking with businessmen from various industries it is truly heartening to see how people have dusted themselves up and have found new energy in trying to revitalise their companies. Many of them are turning their businesses towards exports or by opening up branches abroad. Others are changing their cost structure by relying more on part-time work and freelance work. Others are joining their distribution channels, sharing office space, finding new ways to do old things at half the cost, doing everything it takes to keep their companies alive. For sure not all of them will succeed and as such, unemployment will continue to increase in the months ahead. But we have to understand this is an attrition war and we are not going to go through it without casualties. Our economy is changing, structural inefficiencies are being corrected and this will not happen without pain.

Importantly, we are finally changing how we do business. Before March 2013 and after 2010 when things started to go south many of us instead of radically changing the way we work, we just slowed down our pace, cut some costs, conserved energy and basically adopted a wait and see approach in the hope that somehow things would get better in the near future. We went like this for a couple of years, depleting our cash reserves, hoping that the signing of a troika memorandum would be the end of our troubles. Well, March 15th 2013, shattered that hope. And for a few days, it shattered all hope. But at the same time, it liberated many of us to try different things, different business models, different markets. You see when you have nothing to lose, you also have everything to gain from trying something new. And in the months ahead another thing happened. We realised that this bleak, dark financial future we were predicting did not come to pass. People still managed to go out (for a drink instead of dinner), people still went on vacation (to the nearest beach instead to the nearest island), people still made ends meet (with more imagination and less bragging) and in all, people still managed to go on with their lives with fewer means but with dignity. Some have been hit much harder than others and for them the above will be hollow words. I am sorry for that; their only consolation comes from the strong wave of charitable work that is helping alleviate some of their pain and anxiety.

The suffering of these people is a very stark reminder that we still have a long way to go. And victory at the end of this road is not yet a given. 

As such there are still a great deal of things that worry me about the next 12 months. How will the banks start lending again, how will they deal with their huge NPL portfolios, will the painful structural changes in the public sector go through, will privatisations take place, will politicians (and one saint) stop meddling in everything, will we be able to capitalise on our natural gas finds and not have them turned from a blessing to a curse, will the economy hold up in 2014, what will happen with the negotiations for the Cyprus problem (the original one not the current one), will the guilty that wrought so much damage to this country face justice, will more people of merit and fewer people of means occupy the key spots in our public institutions…? Tough questions, many unknowns. 

But as the end of the year approaches I am definitely more optimistic than what I was in March 2013. Part of that is just me (you see a two euro coin and a smile from your son will do that to you). But another part, the one you are interested in, is fuelled by a great deal of things that I see around me, some measurable and some not, but all pointing in the same direction. We were down but not out. We were bleeding but not dead. And now I think some of you are smiling because you feel it too…(now why is my back aching?)