The Cypriot government has announced that its fiscal deficit has reached 3% for the first 6 months of 2012. Not long ago, they were stating that the deficit would be 3.5% for the fiscal year of 2012. Now, I am no expert in numbers but anyone in their right mind would understand that having a mere 0.5% rise in deficit over the next 6 months is a Midsummer night's dream (Unless of course very drastic measures are taken, a far-fetched scenario however). The Cypriot government has moved along the same lines as the ECB. It usually states "we will not have a deficit of more than 3.5%" or "austerity measures will be taken", however, nothing of the like ever takes place. The credibility of the government is long lost in international markets and regaining it would be hard (if not impossible).
Credibility issues have been a problem in the Eurozone ever since the sovereign debt crisis has emerged. You may remember Draghi's statements of doing what it takes. Of the crisis-ridden economies only Mario Monti has held to his credibility, and to my surprise the Greek Prime Minister Antonis Samaras is trying to regain it for his nation. Who would expect a Greek to deliver what he had promised? Certainly not the Germans, and certainly not most Europeans. In an interview in Bild (found here in English), Samaras states that what they are asking is for more time not more money. In his words: "Let me be very explicit: we demand no additional money. We stand by our commitments and by fulfilling all our requirements. All we want is a bit of 'air to breathe' to get the economy running and to increase state income. More time does not automatically mean more money."
What Antonis is asking is what I have proposed here, here and here. Specifically that he is given a larger time-frame to push through the additional reforms. I was stating yesterday that if the crisis ends now, Greece will be the only country in the South to benefit from it. To back me up on that, Samaras stated: "We will soon have a smaller, healthier and significantly more efficient public service.We are making progress, we are reducing the overall number of public servants and I have decided to hire only one person for every 10 retired civil servants."
Large public sectors and low productivity have always been an issue in the South. I can confirm that as well, based on personal experience. What now seems to change is mentality and the political will to promote reforms. I honestly hope that this is not just an outcome of EU pressure on the country. It would be too bad if it was. The Greeks now have a genuine opportunity to live in a better country. It would be a shame to blow it like they did in the past. Credibility... It haunts people and nations for so long...