The Cyprus Government is fast running out of time in dealing with the austerity measures it must implement in order to stave off more credit agency downgrades, and the possibility of a bailout.
The predicament the Cyprus government faces, is that it is a minority government, after the minority partner left the coalition due to differences concerning the first austerity package. There were agreed proposals in the measures, whereby later the government watered these down to appease the civil servants union, who are it's main backers.
The second set of austerity measures are meant to be a sweetner for the parties to vote them through, but most agree that it will not cut the deficit enough, thereby threatening to vote against the proposals. Parliamentary voting takes place on Friday 26 August.
The second austerity package proposes €360 million spending cuts and a promise to be aggressive in it's pursuit of tax evasion, a practice which is considered fair game in Cyprus. One measured mention to combat tax evasion, is the issuance of a receipt for every transaction between parties. The personal data law will also be changed to make it easier to uncover tax evasion.
The opposition parties clearly want tougher measures, and want action now, as opposed to phasing in measures. They are clearly concerned that the credit rating agencies will not be happy with the measures proposed, and so will look to downgrade Cyprus even further. Cyprus will find it much more difficult to raise funds due to the hike in rates it will have to pay following a downgrade, plus the threat of a bailout looms overhead.
The opposition parties have made it clear that cutting the the amount of civil servants on the government payroll is a priority, along with their generous pension and other perks. The main supporters of AKEL, the party in government is made up of civil servants and the party needs their support. The civil servants voted recently to strike if proposals agreed recently between the government and their union were altered in any way.
These threats are already making the credit rating agencies nervous, followed by the concerns over Greece, where Cyprus has invested considerably. There clearly needs to be a strong message sent out to the financial markets, to limit any further damage to the economy.