The Tortoise And The Hare

By Global Tax Weekly

For the European countries which used to make some or all of their living from being “low-tax,” which does of course include Switzerland, the EU has always been the elephant in the room, and if Switzerland may by now regret having been ambivalent towards the EU, some other countries which threw in their lot more whole-heartedly with the EU have met with unexpected outcomes. In the case of Cyprus, the initial EU-induced boom has turned to ashes in its mouth; but Malta seems to have gotten everything right, and is carefully building itself into a diversified financial services and e-commerce centre. Its latest wheeze is to create a secondary stock market designed to attract smaller, more entrepreneurial companies; technically it will be known as a Multilateral Trading Facility under the country’s investment legislation. Jersey and Guernsey have shown what can be achieved by a tax-efficient boutique-oriented listing exchange: the Channel Islands Stock Exchange (CISX) has operated very successfully in the shadow of London’s exchanges, and Malta, with access to “passporting” (i.e. a licensed Maltese financial services provider is able to offer its services across the EU), should be able to do the same.

Actually it is inexplicable that Cyprus has played a nominally winning hand so badly. Perhaps it would have been asking too much for it to resist the flood of suspect money that came rushing at it from Russia in the 1990s, but that had been digested by the time Cyprus joined the EU (along with Malta) in 2004. The damage was then done by a property boom in which the entrenched and moderately corrupt ruling class enriched itself with no regard to sustainability or the rule of law. While they were playing at being property moguls, sowing the seeds of an eventual banking collapse, the public sector grew out of control and opportunities for well-founded economic growth went a-begging. There is almost no e-commerce development in Cyprus – why not? The stock market more or less collapsed early in the century because of a speculative boom, and has never recovered; instead, it merged with the Greek stock exchange in a slow-motion suicide which has yet to be resolved. By 2008, when the writing was on the wall for Cyprus’s banking and property boom, and sensible people understood what lay ahead, the country saddled itself with a five-year term of maladministration under a Communist President, who has done 20 years’ worth of damage to a situation which, though bleak, could have been saved by urgent reforms. Now it’s too late. Cyprus has such natural advantages that it will bounce back, but it will not be soon.

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