A comparative analysis of economic resilience among EU member states : the role of island states

Abstract

Economic resilience is the ability of a country to withstand an economic shock, and efficiently recover from it. It has a number of dependents a country must maintain in order to be economically resilient. These pillars are macroeconomic stability, microeconomic market efficiency, good governance and social development. Small island states, such as in the case of Cyprus and Malta, have to build this resilience, as their inherent vulnerabilities make the country exposed to exogenous shocks. Malta and Cyprus have thus been affected by the financial crisis of 2008, although both to a different extent. Both islands have similar characteristics, both dependent on imports with a very narrow export base. However, the reason, which has driven Cyprus into recession, was not mainly based on the lag of trade, like in the case of Malta. In this dissertation, I shall assess the effects of both Malta and Cyprus in the financial crisis. From data found from various sources, the various aspects that economic resilience depends on are examined. From this, a content analysis of these indicators takes place, analyzing what has caused a change in the data from time to time, and finally a comparison between the two case studies. The main reasons that lead to Malta being affected by the financial crisis, was in fact its economic openness, and the slowness of trade around the EU. During this time, the Maltese government took immediate action in order to boost the economy, and lower its deficit. In the case of Cyprus, however, it was the decision taking of the government at the time, which proved to be inadequate for a time when the EU was in economic hardship. These decisions lead to an excessive fiscal deficit, making the Cyprian economy unsustainable for the effects of the crisis. It is thus finally concluded that, although all pillars are interconnected and interdependent, good governance is the most fundamental. The building and good maintenance of a stable economy able to withstand economic shocks, depends a lot on a government which is able to implement adequate policies and strategies. A government, which has the ability to take appropriate measures that lead to the strengthening of the economic health of the country, is what finally leads it being economically resilient.