Overcoming Private Debt: Unblocking and Rebuilding the Loan-Burdened Real Economy in Cyprus

Abstract

The article discusses the enormous private debt in Cyprus and how it affects the conditions for economic recovery. It stresses the need for drastic and decisive action from the government, including the participation of international multilateral financiers in reconstructing and funding viable institutions in Cyprus that can bring about changes in the real economy. The author notes that potential recovery through conventional methods alone are unlikely to be successful because of the unprecedented levels of private debt and nonperforming loans in combination with the fact that the bulk of the deposits in the banking system are foreign owned while almost the whole of the loans weigh on Cypriots. In order for a steady and sustainable growth to take place, the author suggests, the national currency must first reflect its true exchange value, taking the fundamentals and facts of Cyprus into consideration rather than those of Europe as a whole.