The next crisis may start with unaffordable energy costs and end up hitting our pockets directly
We are caught between exorbitantly expensive infrastructure projects that are falling behind schedule and the reality of diesel at two euros a liter. Political leaders must find a way out now, if they do not want to see the energy crisis throw society and the economy into turmoil. To achieve this, it must first abandon the notion that we are going through a temporary period of hardship and treat the situation as a new, permanent reality. Only then will it be able to make immediate and rational decisions, even if they come at a political cost.
At the same time, the government and the relevant authorities must take the International Monetary Fund’s warnings seriously and coordinate with the European Union in a timely manner, in order to avoid further delays. The data indicate that there is still a limited window of opportunity to avert the worst. If political leaders let this opportunity slip away, we’ll once again have to wait for the investigative committees to explain to us after the fact why it was all inevitable.
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From 2013 to Today
The crisis of 2007–2013 was also considered inevitable; it began in the real estate market and spread to the banks and public finances. However, the next crisis may begin with unsustainable energy costs and hit our pockets directly. The pattern, however, shows alarming similarities: a difficult and unpredictable international environment, recurring domestic missteps, and a complacency that delays the necessary decisions.
And yet, since 2022, we have been living with this new reality of high inflation and exorbitantly expensive energy, despite occasional lulls. At the same time, for decades now, the authorities have been trying to secure adequate natural gas supplies and build modern energy infrastructure, without having secured what is required. The result is that projects are tied up in arbitration, costs are rising, and we are exchanging hostile glances with Greece over the Great Sea Interconnector (GSI), while the “Prometheus” floating platform is anchored in the Gulf of Malacca. Among our “successes” is the fact that we returned 67 million euros to the EU due to irregularities in the contract for the Vasilikos terminal, while the project is under investigation by the European Public Prosecutor’s Office for possible fraud, abuse of power, and corruption.
We are paying the price for this today, and the bill is no longer limited to energy. It is spreading to more and more products and services, eroding citizens’ purchasing power and the competitiveness of businesses. The 5.2% inflation rate for August and September is yet another warning that the government cannot afford to ignore.
However, as long as the economy continues to grow, there will be some room to maneuver. At least for this year and next, growth is expected to continue. According to IMF projections, GDP growth is estimated at 2.9% this year and 3.2% next year, while unemployment is projected to fall to 4%. Other positive factors include high fiscal surpluses, which provide room to complete critical infrastructure projects, repay obligations related to the pandemic and the Memorandum, and support vulnerable groups through permanent and targeted mechanisms. The government must make use of this leeway by setting specific priorities, rather than treating it as an inexhaustible source of funding.
The Public Sector Pay Scale
This does not mean, however, that there is money for everything. The government, as well as Parliament, must prevent the public sector payroll from expanding without substantial justification, strictly evaluate projects of dubious added value, and avoid across-the-board measures to address inflation. The political leadership must also resist pressure from any organized group that demands additional resources without taking fiscal costs into account. And there are many such groups.
From bondholders who have suffered haircuts to high-salaried officials and technocrats who receive per diem allowances—even for missions to brief Africans on the Cyprus issue. The government must rein in this kind of waste, even in an election year. It must be made clear that political leaders cannot shy away from difficult decisions nor foster expectations that are not grounded in the country’s actual economic capabilities.
If, in this environment, the economy slips into recession, the current difficult situation could become truly unsustainable. The scope for support will be limited precisely at a time when needs are increasing. That is why the government must act while the economy still has resilience, rather than waiting until the available means of intervention are limited.
Unless, of course, political leaders believe the crisis will pass us by. If it believes that the price of $100 per barrel for Brent crude is temporary and that we will soon return to $50 or $60, it must explain on what data this assessment is based. Such an expectation presupposes not only that the armed conflicts in the Middle East and Europe will end soon, but also that international energy markets, transportation, and supply chains will quickly return to 2022 conditions.
Revision of Energy Strategy
Political leaders must also revise their strategy for the energy transition, taking into account the reality of climate change rather than treating it as an abstract concept. In practice, however, delays, a lack of a sense of urgency, and the insistence on “stopgap” measures create the impression that those in charge are still banking on a return to a reality that may never exist again under the same conditions.
The government must, therefore, take concrete initiatives and negotiate in a timely manner with the European Union to establish a framework that will allow for an effective response to the energy crisis. The fiscal flexibility Cyprus is seeking makes sense only if it is accompanied by clear priorities and a corresponding reallocation of resources. It must be understood that the EU will not allow additional borrowing, particularly in an environment of rising financing costs and high public debt in the Eurozone.
Cyprus therefore needs a concrete fiscal plan for energy. The government must set clear goals and timelines, cost out its interventions, and establish measurable evaluation criteria. We need projects that are substantive for the economy, free from geopolitical considerations. In other words, the government must prioritize the necessary energy infrastructure, accelerate those projects that can actually reduce costs, provide targeted support to those most in need, and ensure that every euro of public money delivers real value.
There is still time, but it is not unlimited. And the worst-case scenario is not having to make difficult decisions today. It is that the country will be forced to make much harder ones tomorrow, because the available options will have been exhausted.
