Cyprus needs a fresh economic model to address today’s challenges and improve social well-being, according to a new policy paper by Andreas Theophanous and Mary Vardas.

The paper, published by the Cyprus Centre for European and International Affairs at the University of Nicosia, also calls for a new social contract to accompany this shift, aiming to better reflect the needs of modern society.

The authors argued that two decades after EU accession, the country has failed to reap the expected benefits.

“A typical example is the fact that the purchasing power of Cypriots in 2023 remained at the same level as in 2008, despite the increase in GDP,” they said.

This, they added, reveals a stark reality that “the real well-being of citizens has not only not improved but has remained stagnant for 15 years.”

As a result, inequality has widened, the middle class has shrunk, and the percentage of the population living below the poverty line has increased.

A serious problem, the authors noted, is that “the strategic, social and dietary role of the state is no longer being exercised to the extent it should be,” while tensions are deepening amid rising immigration pressure.

“It is clear that in Cyprus the immigration limit that the country can absorb has been exceeded,” they wrote, warning that this is undermining social cohesion and affecting the functioning of public services.

They also highlighted a steady erosion of national control over key sectors, pointing out that important areas of the economy are being acquired by foreign capital, including banks, healthcare, higher education, supermarkets and real estate.

“The whole picture contains serious risks,” they wrote, adding that “the state has failed to effectively exercise its strategic, social and dietary role.”

At the same time, they pointe to growing demographic pressures, as many young Cypriots continue to seek opportunities abroad.

“This situation cannot continue,” the paper stated.

Elsewhere, the authors stressed that the divide between public and private sector employees remains firmly entrenched.

One of their core proposals is a reassessment of the pension system.

“Among other things, there should be a maximum and minimum pension,” they suggested, and “the level of each pension should be linked to the contributions of each worker and professional.”

The paper also questioned the assumptions made around Cyprus’s EU and Eurozone membership.

“Cyprus cannot withstand a highly competitive European and international economic environment,” the authors wrote, noting that the country significantly underestimated the long-term consequences of accession.

At the same time, they argued, “there was no substantial reflection on the possibility that decisions taken at various levels would not correspond to the interests of the country.”

Instead, “a naive and ideologically determined approach prevailed, according to which any direction or policy emanating from the EU was considered largely positive and inevitably imposed.”

According to the paper, deep reflection is now needed, not only on the role of the state, but also on the type of foreign investment that should be promoted, and the long-term strategy required to achieve balanced and sustainable growth.

They argued that “the existing model, which combines the worst face of the client state with a selective application of Neoliberal policies, is doomed to fail.”

Unless a fundamental rethink takes place, they warn, “the perpetuation of the existing economic model entails the deepening of the problems.”

Rather than resorting to short-sighted solutions that burden citizens, Cyprus, they said, needs “a new economic model that will aim at balanced development, sustainability and ensuring greater social equality.”

In their view, several areas require immediate attention, including the diversification of the economy, better exploitation of Cyprus’s energy resources, the strengthening of competitiveness, social justice, and green growth with clear timetables.

They also proposed that Cyprus could strengthen its economic foundations by building on new levers of growth. For instance, the island’s geographical position and relative political stability, they noted, could help position it as a regional hub for the provision of humanitarian aid.

Furthermore, the establishment of a modern medical centre could attract international patients and support medical tourism, while transforming Cyprus into an academic centre of international calibre would also have a positive economic impact.

At the same time, the authors underlined the importance of strengthening the primary and secondary sectors, namely agriculture, fisheries and manufacturing, to reduce the country’s overdependence on tourism and services.

Finally, they welcome the government’s new initiative aimed at the repatriation of Cypriot professionals living abroad.

Describing the brain gain strategy as “a strategic move with significant prospects,” they caution that “for this effort to pay off, real progress is required in the field of research and innovation.”