HOW COMMUNIST IS CHRISTOFIAS?

C O N F I D E N T I A L SECTION 01 OF 02 NICOSIA 000152

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/28/2018
TAGS: ECON PREL PGOV CY
SUBJECT: HOW COMMUNIST IS CHRISTOFIAS?

Classified By: AMB R. SCHLICHER FOR REASON 1.5 (B) AND (D)


1. (C) Summary: The Cypriot business community is confident
that despite his education in the old Soviet Union and
refusal to disavow his or his party's communist label,
President Christofias will keep his promises to maintain the
orthodox economic policies that have helped Cyprus grow over
the past few decades. Although GOC social spending and labor
union influence will probably increase, observers believe
that the government budget will stay within EU requirements.
End Summary.


2. (C) In conversations with businessmen, bankers, and
economists of varying political affiliations, but mostly
right-of-center, all agreed that newly-elected president
Demetris Christofias is communist only in name, and actually
holds economic views closer to those of northern European
social democrats. They dismiss Christofias's refusal to
change the official ideology of his "Progressive Party of the
Working People of Cyprus" (AKEL) as a desire to "maintain his
brand" and "not confuse the electorate."

Limited Room for Experimentation
--------------


3. (C) Our interlocutors also believe that, even if they are
wrong about the intensity of Christofias' left-wing views,
his ability to act on them will be constrained by a) Cyprus'
membership in and commitments to the EU and EMU, b) a
parliament which AKEL does not control, and c) ministers in
key economic portfolios who hold orthodox economic views.
Many also point out that AKEL itself has important business
interests that they would not want to harm, including control
over Cyprus' largest printing company (Printco),a major
coffee roaster (Laiko),winery (Loel,) and a group of travel
agencies.

The Economic Platform
--------------


4. (U) In the run-up to the February 24 election, Christofias
outlined his economic platform with the following planks:

-Vision for a multi-faceted and multi-level development
policy through a mixed economy;

-Safeguarding workers' rights while, at the same time,
promoting business activity, as well as social peace, for the
benefit of all;

-Social and economic development centered on people and their
needs;

-Continuous adaptation to technological progress and improved
productivity through the encouragement and utilization of
research and innovation;

-Supporting Small and Medium-Sized Enterprises;

-Safeguarding the social character of public benefit
organizations but also encouraging bold modernization so that
they become more flexible and competitive;

-Macroeconomic stability through disciplined fiscal policy;

-Implementing new polices to attract foreign investment;

-Modernization and radical restructuring of the tourism
sector;

-Introducing high and appropriate technology in the
manufacturing sector; and

-Offering economic and advisory state support for the
introduction of new sectors and products.


5. (C) While these goals are mostly generalities and perhaps
occasionally contradictory, they indicate to the Cypriot
business community that, although there is likely to be
increased social spending (especially for certain pensions,
single parents and health care),it will be undertaken with
care to ensure no disruption to macroeconomic conditions and
Cyprus' continued perception as a business-friendly
environment.

Union Power
--------------


6. (C) We met with Pambis Kyritsis, an AKEL MP and Secretary
General of PEO, the AKEL-associated labor union, for his take
on how Christofias' policies will be manifested. He affirmed

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that more money would be spent on "social justice,"
especially for pensioners below the poverty level (he
estimated 60,000 persons are in this category). But he added
that the current "mixed economy" would continue and that no
additional companies would be considered for nationalization.
He stressed that Christofias and his team realize that "we
can only spend more on social programs if the economy grows.
We believe in the market economy."


7. (SBU) Given AKEL's close ties with the labor union
movement (which count 60 percent of the work force as
members) and calls for "safeguarding workers' rights", many
expect Christofias to enact policies that favor union
interests. However, if the administration of Cyprus' two
largest cities by AKEL mayors is any indication, municipal
unions have not only not been favored, but been the subject
of the mayor's calls for improved efficiency and budgetary
rectitude. Mayor Eleni Mavrou of Nicosia (a member of AKEL's
Central Committee) has even called for outsourcing of more
municipal functions as a way to improve service and lower
costs. The unions have not yet objected to this proposal,
although it is still at the study stage.


8. (C) Comment: Most observers expect the Christofias
administration to increase social spending and transfer
payments, but not spend past the point of a three percent of
GDP budget deficit (per EU requirements.) Christofias's
attitude is said to be that, if the rules allow a deficit up
to three percent, then that is the target, but the target
must not be exceeded. There is no indication of where
Christofias would make budget cuts if a decline in Cyprus'
GDP left tax revenue below projections.


9. (C) Comment continued: Christofias is expected to be
generally friendly to business and foreign investment. We
would be surprised if he ever attempts to nationalize
anything not already government-controlled. However, he is
also unlikely to address Cyprus' structural problems such as
a demographically-challenged pension system, automatic
indexation of wages to CPI, and the existence of large
parastatals that control important sectors of the economy
(especially energy and telecom). The tight discipline AKEL
maintained throughout the election also indicates that any
more ideologically driven AKEL members appointed to important
positions in the economy will not stray beyond the parameters
Christofias sets. How U.S. business is treated in government
tenders remains to be seen (given AKEL's penchant for
occasional broadsides against "Anglo-American imperialism")
as does the question of whether Christofias will grow more
populist as his term of office begins to expire or if
economic conditions in Cyprus become less benign.
SCHLICHER