THIS IS not an endorsement of Germany’s government’s policy regarding the Cyprus bailout or the Euro-Crisis at large. While I do indeed support the case for intelligent austerity and deep structural reforms throughout the Western world, I admit, like many other informed people that the course advocated by Berlin has not been successful and that a complimentary growth based strategy is needed to ward off a European Great Depression, which will only make the debt situation more unsustainable.

I also admit that Berlin and the Troika may have failed to take into account of the sensitivities of the population of other countries and the risk to the European project when they took their decisions. I also firmly believe that, just like in Southern European debtor countries, politicians in Northern European creditor countries, particularly the German leadership, albeit for the opposite reasons, frequently failed President John F Kennedy’s “Profiles in Courage” Test.

Those who are willing to take the test, and pass it, become statesmen, in that, they stood by their personal political beliefs regarding the future of their country, even though their friends, colleagues and constituents overwhelmingly disagreed, posing a clear political cost that has the power to destroy one’s career. The category that chooses to be led by the polls, rather than to challenge and change the polls, are politicians. That said, I will lay out my argument explaining the opinion of the German voter, which, rightly or wrongly, motivates Chancellor Merkel’s coalition.

[A] The first thing that should be made clear, is that, however genuine the grievance, however deep the suffering caused by a failed austerity heavy strategy, the politicians of Southern European creditor countries, the media, and the public at large, should not, in any circumstances invoke the memory of WWI and WWII. They should not refer to Chancellor Merkel as the “Fuhrer of the Fourth Reich”, “Hitler’s demon love child” and they should not declare that Germany is launching WWIII, with the weapons of choice being euros instead of blitzkrieg panzer divisions and V-Rockets. They should not be implying that Germany intends to turn countries like Greece and Cyprus into giant versions of Auschwitz, as SYRIZA’s Tsirpas did when he called the austerity a “Holocaust”.

I certainly do not endorse the claim that “Germany seeks to do to Cyprus what Bashar Al Assad is doing to his own people”. Although passions are running high at the terrible state of affairs, this is wrong on many levels. It is wrong in that it trivializes the bravery and suffering of all those who fought Nazism on the battlefield, including the German military officers, led by Klaus Von Stauffenberg, who tried to kill Hitler in an abortive coup. It is wrong in that it trivializes the suffering of those who endured the destruction of their countries and societies by Nazi occupation, from Norway to Greece to the Ukraine.

It is wrong in that it makes light of the men, women, and children, who, because they were deemed unworthy of life for whatever reason, were shot above ditches, locked in gas chambers and asphyxiated, or pushed into crematoriums while they were still alive. However, besides betraying an immature lack of perspective, it is wrong on both a moral and political level in that German voters see it as a strategy of psychological abuse and emotional blackmail.  Nazism was not just a crime against humanity in itself-it was a crime in that it destroyed the soul of a proud nation by degrading it to the spirit of a monster.

Virtually every German family carries a portion of that trauma of guilt and shame. They believe they are trying to atone for it by offering to help their fellow Europeans. Do you think it is nice to have this trauma constantly thrown back in one’s face? Do you think we could persuade the German voter to be reasonable and allow leeway to their leaders? Do you think it is right to label the people who are supposed to save us as “barbaric Krauts” or “Teutonic Brutes”? Do you think this will rebuild a united and dynamic Europe?

[B] My second line of argument concerns the cultural misunderstanding between Southern European debtor nations and Northern European creditor nations, particularly Germany. Southern Europeans, because of Roman Catholic and Orthodox views of community and different political development, have an interpretation of solidarity. This also extends to France’s political economy, regardless of left and right divisions.  Unfortunately, this communal idealism has translated into thinking that the Northern Europeans in general, and the Germans in particular, are unfeeling asset strippers and deficit scolds at best, or jack-booted fascists at worst.

This is not the case. Northern Germany was the centre of the Protestant Reformation. Its’ leader, the formerly Catholic monk Martin Luther, gave his name to one of the earliest Protestant denominations-Lutheranism. Lutheranism teaches that the individual is primarily responsible for his own spiritual salvation by the grace of God. This theological standpoint entered the economic sphere as the Protestant Work Ethic, where it is believed that industry and frugality would not only lead to spiritual salvation, but economic independence.

However, Lutheran culture encourages the notion of charity and communal solidarity on these grounds; that the community of individuals should, from time to time, offer help to individuals who are experiencing hardship or have lost their way so that they can become not only independent again, but also, contributing members of society. In an opinion piece in the New York Times, Harvard German History Professor Steven Ozment, set out Martin Luther’s vision of Christian, and civic, responsibility: 

 “He made the care of the poor an organized, civic obligation by proposing that a common chest be put in every German town; rather than skimp along with the traditional practice of almsgiving to the needy and deserving native poor, Luther proposed that they receive grants, or loans, from the chest. Each recipient would pledge to repay the borrowed amount after a timely recovery and return to self-sufficiency, thereby taking responsibility for both his neighbors and himself. This was love of one’s neighbor through shared civic responsibility, what the Lutherans still call “faith begetting charity.””

Although Germany is a secular country with a significant Roman Catholic minority, this doctrine has formed the German outlook, and is seen as the root of Germany’s industrial and economic might, from the small Mittelstand firms to the engineering giants. It is an especially relevant doctrine for Chancellor Merkel. Her father was a Lutheran pastor from Hamburg who moved his young family from West Germany to East Berlin just so that he could work to keep Christianity alive in the East German communist state.

Beyond the influence of her father’s preaching, Merkel was influenced by the stifling lack of encouragement of individual and civic enterprise and initiative. Combined with the obvious facts that she believes in German economic efficiency and rigor, Germany’s strength as an export model and that she leads a centre-right  party, that, although not as much as  the British or American conservatives, has a skeptical view of big government, and it is not very surprising at all that the German Chancellor has adopted a tough line to the Euro-Crisis.

[C] That being said, it should be noted that long before the Euro-Crisis burst into view, German voters and taxpayers have been fulfilling a civic responsibility towards the rest of Europe throughout the history of the European project. It started with the Marshall Plan, when the United States offered its Western European allies reconstruction funds after WWII, including the defeated foe, Germany. West Germany’s new democratic leadership, its industrialists, small businesses, workers and society as a whole used this opportunity in true civic Lutheran fashion-they fashioned an economic miracle or Wirtschaftswunder- at the same time as ditching the worthless pre-war currency , the Reichsmark in favor of a stronger Deutschemark.

They were able to do this despite initial Allied restrictions on German manufacturing capability and the requirement for some war reparations. West Germany, along with France, became the motor of the EU’s predecessor, the European Coal and Steel Community. It was returning the interest back in spades by becoming a pillar of the free world. Germany’s civic responsibility towards Europe did not end there. As part of its efforts to atone for the past, and lay the groundwork for a mutually prosperous future of a union of European nation states with strong market economies and healthy welfare states, it was ready to put its financial muscle-essentially the money of German voters and taxpayers, towards achieving that goal.

The EU had a couple of big waves of enlargement. Each time, it was expected of the  Federal Republic of Germany, as the biggest economy, to contribute the bulk of aid funds to incoming neighbors so that they could get their economic fundamentals up to scratch. The most recent enlargement wave, 2004-2007, saw Cyprus and Malta enter the EU alongside Poland and other formerly Eastern Bloc countries. The other notable enlargement wave was in the late 70’s and early 80’s when mainly poor countries that had recently right wing military dictators were welcomed, except for Ireland, which, although poor, was always a liberal democracy, and the UK, which although it was facing economic hard times, was still something of an economic great power. The poor, new democracies that were entering were called Spain, Portugal, and…Greece.

One would think that the German voter and taxpayer would expect that the funds, which continued long after these countries joined, [Common Agricultural Policy, regional aid, European Investment Bank] right up to the onset of the crisis, would be as wisely invested as the Germans did with their bit of the Marshall Plan. One would also expect that these countries, after wisely investing the allocated funds, would, aside from thriving, would be active co- architects of a giant, competitive high economic growth, high quality of life area in an age of several global economic great powers. One would also expect that the German voters and taxpayers who provided these funds would be quite angry that their partners had landed themselves in such dire straits that the continent’s very economic existence is threatened, just like an uncle would be angry at his nephew for involving the family business in a Ponzi scheme.

[D] Speaking of Ponzi schemes, the current anti-German feeling gripping Southern Europe, particularly Greece and Cyprus, adds insult to injury, and is a source of angry confusion to the German voters and taxpayers. True, the unwillingness to consider complimentary pan-European fiscal and monetary stimulus policies, as well as a series of half measures on the part of Merkel’s government and the German dominated European Central Bank have massively contributed to the crisis, but they were not the origins. German voters and taxpayers know in their gut that they did not cause the crisis.  

Who did, then? The list is long but it is simple. First, we have the US Republican Party, led by the George W Bush Administration from 2001 to 2009, and the Republican Congress from 1995 to 2007. They were the ones that made irresponsible piling up of more and more debt fashionable in the West. They were the ones who passed an unpaid for, three trillion dollar tax cut on top of a disastrous unpaid for and unnecessary war whose liabilities range from three trillion dollars to six trillion. They were the ones who enthusiastically repealed and removed common sense regulations on Wall Street and Main Street alike that even Ronald Reagan, the free market champion, didn’t try to remove during his eight years in power.

It was the ensuing Wall Street culture of greed that led to the investment in, and marketing of complex financial products centered on mortgage securities to the middle class and those whose economic status was weakening as inequality grew. They encouraged the spendthrift, unsustainable feel good culture of false prosperity based on ever accelerating, ever rising home values, whilst allowing exports to decline as a share of GDP. It was these actions that destroyed a 158 year old investment bank.

Also, it was the sheer spitefulness of the radical fringe of the Republican Party, who, because they could never accept a liberal African-American president, let alone the son of a Muslim Kenyan immigrant, did everything possible to throttle the economic recovery during Obama’s first term. The would be grown-ups within the Republican Party refused to stand up to the crazies because they feared a negative reaction from their voter base and donors and they also rationalized that a weak economy would give them back the White House in 2012. Even after they lost, they still are following the same strategy, the sole objective being to beat Hillary in 2016.

Meanwhile, as America begins to inch ever closer to Europe style collapse because of Republican obstinacy, the combined economies of the EU also suffer, as America is their main trading partner. Second, we have the British, where the City of London decided to mimic Wall Street by engaging in mortgage backed securities on top of an unsustainable housing and real estate boom, and where the Labour Party, overcompensating for its past radically socialist agenda, got too cozy with big business, in effect damaging free market capitalism. Ditto the Irish, who discarded the competitive advantages of a vibrant diaspora and a low corporate tax hub for investment from small niche high tech firms and giants, like Google and Apple because they wanted to ape their British neighbor. That is just the first country that required a bailout. Then we have the rest of the West, consisting of not just the Southern European periphery, but even France.

The Italians, although they were told that they had to tackle their too high debt to GDP ratio for over 20 years, and that they had to regain competitiveness and increase economic opportunity for their young underemployed and employed, kept electing a clownish, rakish crook whose main objectives were to protect his business interests, keep himself out of jail, and sleep with every young woman who caught his eye, not necessarily in that order. The Spanish, although they kept their budgets healthy, and made some reforms, didn’t go far enough and allowed their local community co-ops engage in their own property bubble. The Portuguese overspent on infrastructure and civil servants. The Greeks however did the most.

The Greek governments, with Andreas Papandreou setting the example with the Bank of Crete scandal, encouraged the culture of tax evasion and the patronage and cronyism bloated big state, with jobs traded for votes. They encouraged kickbacks with contractors big and small, [this included a few corrupt German businessmen from Siemens even].  They wanted to be at the heart of Europe without having to tell their voters, that, to achieve this goal required root and branch change, so they cooked the books repeatedly to get into the Eurozone. In fact, Germany was doubtful from the very beginning as to whether Greece was suitable to be a founding member, but France nagged her incessantly.

They splurged on the Olympics they couldn’t afford, and allowed the legacy to rot and Greece’s beautiful forests to burn for the sake of corrupt developers. When they admitted they were in trouble, instead of the two mainstream political forces uniting, they became more divided than ever; the New Democracy opposition, led by now Prime Minister Antonis Samaras cynically calculated that scorched earth opposition to the debt consolidation and bailout legislation put forward by George Papandreou would win them populist votes, despite the fact that, as an Ivy League educated economist, he should have known that he was damaging internal and external confidence in Greece. His behavior was especially galling, in that the 2004-2009 New Democracy government had virtually tried to rack up as much corruption as the previous 18 years of PASOK combined.

Furthermore, if he had put pragmatism ahead of personal ambition, and been willing to share the political cost with Papandreou, he could have acted as Greece’s unofficial ambassador to the centre-right, moderate conservative and Christian Democratic parties of Europe within the parliamentary European People’s Party, of which Merkel’s party is the main member. He could have utilized the contacts to persuade Merkel that Greece was a united and credible country and that bailout terms could be eased to kick-start economic growth. But he didn’t. As if that wasn’t bad enough, Greece’s political class failed to keep law and order, allowing both far right and far left agitators riot, further damaging the economic climate and reducing the chances of achieving its economic aims, as if the constant general strikes and protests weren’t bad enough. Although Greeks were right to be aggrieved at suffering, they kept digging the hole they were in by opposing everything through non-stop demonstrations. German voters and taxpayers did not ask for any of this.

 [E] Cyprus was seen as the last straw by the German tax paying electorate. Our Soviet educated, Cold       War throwback President was warned by the Opposition, the former Central Bank governor, a succession of finance ministers, coalition partners and the markets that the economic crisis was going to hit Cyprus sooner or later and that some of his spending plans had to be postponed or canceled so that we can undertake fiscal consolidation and reform. We were watching Greece destroy itself in front of our own eyes and we did nothing. We continued to fly obliviously like a pigeon colliding into a skyscraper.

Can you blame the German voting taxpayer for being angry at helping us? Can you blame the German households and enterprises for being angry at having to bail out Cypriot banks because our bankers hadn’t paid attention to what was going on in the world and foolishly bought up Greek assets and debt that would soon become worthless? Can you blame the German political leadership for being tough on our country when we could have avoided this mess if it wasn’t for President Christofias arrogantly refusing to meet with the Central Bank Governor he disliked so as to discuss the impending haircut on Greek debt held by Cypriot banks at an EU summit.

Do you think they have spare political capital to spend on a country that is close to Russia, when its very closeness to Russia, in the form of not destroying Russian munitions destined for Syria, blew a crater in our economy? Do you think that German political leaders and some of the more knowledgeable members of the German electorate, had forgotten that the President before Christofias, had essentially put up a neon sign saying “Eastern European underworld welcomed” by laundering the money of Serbia’s late dictator and war criminal, Slobodan Milosevic?

Do you think that the German political leadership did not know that our blundering attorney general had told the Daily Telegraph that he had no intention whatsoever of investigating whether persons connected to the Magnitsky affair, a case of tax revenue embezzlement, illegal private investor property confiscation, and murder by torture, had some of their ill-gotten wealth stored in Cyprus, when other countries were passing laws to deny these persons’ entry? Do you think any German politician, facing an increasingly fed up and Eurosceptic public in an election year, was going to ignore these issues, especially since everybody got the impression that our former President was engaged in stalling tactics, ballooning the funds required in the process, and acting as if he could dictate the terms according to his party’s manifesto? 

[F] Lastly, a final justifiable grievance of the German voter should be noted. Germany’s governments, especially the left leaning Social Democrat-Green Coalition of 1998-2005, had implemented a continuous raft of austerity and reform related measures, as its business community engaged in restructuring. Germany was hit with two shocks at once-the rapid emergence of new economic great powers like China, and the reunification of its own country with the collapse of the Iron Curtain.

The West Germans had inherited a mess when they welcomed East Germany back into the fold. Hundreds of billions of dollars were needed to invest in East Germany so that it could converge with West Germany’s economy. Meanwhile, the emergence of low cost destinations in Eastern-Central Europe and around the world meant that German workers couldn’t take good, high skilled manufacturing jobs for granted, or the revenues needed for a strong welfare state. Benefits of various types had to be reformed, unions had to embrace reasonable changes and adapt, VAT and social insurance taxes hiked and businesses had to have a smart strategy to integrate the West German, East German, and East-Central European economies all had once so that they could keep good paying jobs and technological skill in Europe and export to China, India and Brazil.

The ordinary German worker, voter, and taxpayer had to accept a temporary slowdown in the growth of living standards and they didn’t ask anyone for help or special favors. They expected to be rewarded for their efforts, but then the Great Recession happened: They were told everything was currently unstable and any great reaping of the fruits of their labors could rock the boat and that they should be patient. It’s been over 4 years since Lehman Brothers, and really, it has been 5 since the crisis started to come into view with the American slump in 2007. The German voters, workers, and taxpayers are still waiting, but they see the fruits of their labor going to other people who appear ungrateful, spiteful and insulting. Something has got to snap.

In conclusion, while German taxpayers, workers and voters have indeed tried to be good cultural Lutherans, it is hard for them because, it is not only other peoples’ messes they are expected to help clean up. The messes aren’t events that were out of the victims’ control. It was in the hands of the various national political and business elites, and unfortunately, their voters for not realizing problems were ahead. However, that still could be tolerated somewhat. What couldn’t be tolerated is the perceived ungratefulness and sometimes expressions of even envy and hatred from the people that they are trying to help.

They cannot tolerate the lack of appreciation of previous German sacrifices that were often wasted, as is the case with the Greek bureaucrats often stealing the EU structural funds. When they reluctantly agreed to give up their beloved Deutsch Mark as a price for a reunited Germany, they expected other countries to fulfill their side of the bargain.  While this does not excuse the German leadership for not even bothering with JFK’s test by asking “My fellow Germans, do not ask what Europe could do for you, but what you can do for an United States of Europe”, they are in an undeniably tight spot. We should help them by handling our differences with dignity, not by trying to degrade them through psychological abuse and emotional blackmail.

POLICE yesterday arrested a 34-year-old man on suspicion of killing a man, and seriously injuring three other men and a woman during two separate incidents in Larnaca’s Kofinou yesterday.
The 34-year-old Greek Cypriot is suspected of attacking and killing Panayiotis Stavrou, 54, and injuring his 27-year-old son Giorgos Stavrou.
Police said that at around 10.20am yesterday, a man carrying a Kalashnikov assault rifle attacked the father and son at a house in Kofinou, then went over to a local supermarket and shot the owners, two men aged 47 and 36, and a 36-year-old woman who happened to be there.
At the time of the attack, the father and son were fixing up a property, which reports said the 34-year-old was claiming for his own use.
The suspect had reportedly tried and failed to be given guardianship of a Turkish Cypriot property that the Guardian of Turkish Cypriot properties body had given to 27-year-old Giorgos Stavrou instead.
All Turkish Cypriot land in government-controlled areas comes under this body which is part of the interior ministry and allocates property to Greek Cypriots to use. The property is not hereditary.
Larnaca news agency said that the 34-year-old was also claiming a piece of government land which had been given to the supermarket’s owners. The 34-year-old allegedly shot at two of them and a woman who was shopping at the time, before a man aged 56 and also one of the owners managed to get the gun off of him.
The attacker then got in a car and left, police said. The two supermarket owners and the bystander were all taken to Nicosia general hospital with the two men considered seriously injured. Giorgos Stavrou was taken to Larnaca general hospital with superficial wounds.

IRELAND'S expected exit from a European bailout programme later this year should be a morale boost to other euro zone countries in crisis, its European affairs minister said yesterday.
Speaking as politicians in Cyprus scrambled to meet a Monday deadline to secure a 10 billion euro bailout and avert financial meltdown, Europe Minister Lucinda Creighton said Ireland's "tough medicine" had worked.
"We're really confident that we will get out of the programme this year," Creighton told reporters at a meeting of European policymakers in Finnish Lapland.
"Hopefully we'll provide not so much an example but an inspiration for other countries which are going through difficult times," Creighton said. "If they see Ireland re-enter the market, hopefully they'll have the resolve and also the sense of hope that they can do it too."
Rescued two-and-a-half years ago with loans from the European Union and International Monetary Fund, Ireland earlier this month took a major step towards exiting the bailout with a successful sale of 5 billion euros of new benchmark 10-year bonds.
Creighton said Ireland's experience proved that austerity measures were never easy but that debt-burdened euro zone members had no choice.
"I think we all know about tough medicine in Ireland. Unfortunately there are no easy solutions," she said. "I think that we simply have to get on with it.”

PRESIDENT Nicos Anastasiades apparently felt betrayed by his associates because they were unprepared during a Eurogroup meeting last week that decided to impose a levy on bank deposits, the leader of the Church of Cyprus said yesterday.
In an interview with Greece’s Sky television, Archbishop Chrysostomos defended Anastasiades’ acceptance of the Eurogroup decision, saying there was not much he could have done under the circumstances.
“The president relied on finance ministry and Central Bank experts in Brussels, who unfortunately went there unprepared and they were threatened, they had no alternative solution and they accepted,” Chrysostomos said.
The archbishop suggested that the Anastasiades felt betrayed by his officials.
“The president did not want to put on a show, be populist,” he said. “If the president had not accepted everyone would applaud him upon his return to Cyprus. But, realising the responsibility he accepted the decision, which was not accepted by parliament.
It had been reported in the past week that Anastasiades had warned Cyprus’ EU partners that the decision would not be approved by parliament.
In a separate interview with Greece’s Real News, the church leader suggested that Cyprus should leave the euro.
“I am not saying it will collapse tomorrow, but with the brains they have in Brussels I am convinced that it will not go far and the best for us would be to find a way to escape,” he said.

All eyes in global banking have been fixated on Cyprus' two largest banks for the last week, as the dramatic steps taken to avoid their collapse, threaten the cornerstones of banking and the EU's single currency.

Bank of Cyprus  
What: With a legacy stretching back to 1899, Bank of Cyprus is the island's largest. Its value peaked at close to 7.5 billion euros in December 2007, but fell to 400 million euros by March 2013. Its business is largely retail banking in Cyprus and Greece, but it also has some investment banking, private banking and the Kermia Beach Bungalow Hotel in the Ayia Napa resort. It employs about 11,000 people.  
Deposits: Just 10 per cent of Bank of Cyprus's 27.8 billion euros of deposits come from outside the euro zone, in stark contrast to Cyprus' overall banking sector, where 30 per cent of deposits are non eurozone. Russians and depositors from the UK hold a roughly equal amount, at 1.2 billion euros. Cypriot depositors account for 66 per cent of the bank's deposits, and Greek for 23 per cent. The figures are dated end-September 2012 and published in the bank's third quarter accounts. (Similar figures for Laiki are not available).
Where: Cyprus (52 per cent of loan book), Greece (33 per cent), and the rest Russia, Romania, Ukraine, Channel Islands, plus representative offices in Russia, Ukraine, Serbia and South Africa. The loan book percentages are as of September 30, 2012.   
Who owns it: 2011 annual report shows 61 per cent of its shares were owned by Cypriots and another 13 per cent by Greeks. The remainder is listed as "other countries". Almost 80 per cent of its shareholders were private at that point.  
Why it's in trouble: It lost 1.6 billion euros on Greek bonds in 2011. Provisions for bad loans more than doubled to 800 million in the first nine months of 2012 as non performing loans shot up to 17 per cent of its total book. Greece was the main driver of 2012's higher loan losses, with 436 million euros of provisions booked there.   

Cyprus Popular Bank (Laiki)
What: Founded more than 110 years ago, Laiki Bank Group stretches across 10 markets. Its market value hit more than 8.1 billion in November 2007, before falling as low as 170 million euros in March 2013. Retail and corporate/investment banking are the mainstays, but Laiki also has a wealth management business and other investments.  
Where: Cyprus (43 per cent), Greece (48 per cent) United Kingdom, Russia, Ukraine, Romania, Serbia, Malta, Guernsey and a representative office in China. The loan book percentages are as of December 2011.  
Who owns it: The government holds 84 per cent after a 1.8 billion euros bailout in June 2012. The rest is owned by around 92,000 private and institutional investors, according to information on the bank's website dated August 2012. More detailed information dating to December 2011 shows staff owned 2.45 per cent of the bank, private individuals owned 37 per cent and companies owned 54 per cent. 
Why it's in trouble: Laiki lost 2.3 billion euros on its Greek government bonds in 2011. Its results for the first nine months of 2012 showed loan losses provisions almost quadrupled year on year to 400 million euros.

THE LEGISLATION passed by the House on Friday allows authorities to split the island’s stricken lenders into ‘good’ and ‘bad’ banks, and is designed to prevent primarily Laiki from collapsing due to lack of liquidity.
The healthy bank would keep deposits under €100,000 and all performing loans, allowing it to start with a clean slate.
In line with the Deposit Protection Scheme in Cyprus, deposits up to €100,000 per natural person are guaranteed at 100 per cent, including the accrued interest.
All licensed banks and branches in Cyprus subscribe to the scheme, and all currencies of deposits are covered.
By way of example, where two natural persons hold a joint account of €200,000, that amount will be ‘split up’ for each of the persons and thus be fully guaranteed.
The same goes for a joint account of three persons with €300,000.
The €100,000 cap on compensation relates to the total deposits held by a customer in a certain bank. The net compensation amount is calculated as the difference between the deposit amounts and the pending loans or other credit facilities or claims by the bank on the customer.
The Deposit Protection Scheme does not however cover deposits held by legal entities, such as provident and pension funds, funds held by semi-governmental organisations and municipalities and other collective investment schemes.
Since that would leave hundreds of provident and pension funds in the lurch, the government was said to be considering a small levy on all banks as compensation.
Meanwhile dodgy loans and deposits of over €100,000 would be channeled into the so-called bad bank.
The deposits transferred to the bad bank are not wiped out; they remain there nominally, but the account holders won’t have access to the money.
Debts to a bank undergoing resolution - or an orderly wind down - will not be written off or down, whether they end up in the good or bad bank.
Essentially the bad bank will buy up the bad loans of Laiki with significant nonperforming assets at market price. By transferring the bad assets of an institution to the bad bank, the bank would clear its balance sheet of toxic assets but would be forced to take write downs.
Banks becoming insolvent as a result of the process can be recapitalised, nationalised or liquidated - in Laiki’s case, the latter is the most likely scenario as the bank is already under state control.
The bad bank would then seek to recoup as much of its bad assets as possible. The cash would go into the accounts of the ‘sequestered’ deposits of over €100,000. As money flows in, the depositors would be able to draw from their accounts.
But this could take years. Additionally, it’s doubtful whether ultimately the amounts held in these accounts would be ‘filled up’ completely. Analysts estimate that depositors would recoup anywhere from 30 to 90 per cent in the best-case scenario, but add that a 50 per cent haircut is more realistic.
The good Laiki - whether absorbed into the Bank of Cyprus, as rumoured, or whether it stands alone - would almost inevitably have to be downsized. That’s because it would deal almost exclusively with loans and would have to ditch other operations that would become redundant.
As stated in the law passed on Friday, depositors have priority in compensation over shareholders in the event of resolution:
Under the law, a ‘Resolution Fund’ is set which is activated in the event that a bank is at risk of defaulting or not meeting its capitalisation or liquidity requirements.
Running out of cash is precisely the problem Laiki faces, after the European Central Bank said it would stop Emergency Liquidity Assistance to Cyprus’ banks unless the Cyprus government struck a deal with international lenders by tomorrow.
It empowers the Central Bank to act as the ‘Resolution Authority’. In the event of a resolution, shareholders would be the first to take any losses, followed by creditors (depositors).
The 61-page document states: “creditors of an institution that is subject to resolution will not be in a worse financial position as a result of resolution measures compared to the position they would be in if the said institution was alternatively wound up.”
Although all sorts are numbers are being banded about these days, analysts said yesterday that Laiki’s restructuring and the dumping of its bad debt would generate perhaps as much as €2.6 billion.
And the sale of all three Cypriot banks’ operations in Greece - rubberstamped by Greek authorities earlier this week - will raise some €250 million in capital immediately.
That’s €3 billion less than the €5.8 billion figure which Nicosia needs to raise to qualify for a promised €10 billion loan from the EU and the IMF.
Efforts yesterday were focused on making up this €3 billion shortfall. One MP told the Sunday Mail that international creditors - known as the troika - were insisting on a large haircut - perhaps as high as 25 per cent - on deposits of over €100,000 for the Bank of Cyprus.
Russians are unlikely to be hit hardest by the mooted 25 per cent tax, given that just five per cent of deposits in Bank of Cyprus come from Russia, Reuters reported.
To avoid a haircut in all but name, the government proposed instead a voluntary scheme where large depositors would contribute part of their money in exchange for bank stock - most probably in the form of preferred shares. Though still a haircut, depositors would be compensated.
The glitch in the talks with the troika was what would be used as collateral or guarantee for the shares. One proposal was that the collateral could be revenues from a “solidarity fund” created to pool state assets, including real estate, as well as from future gas proceeds. Also, that wouldn’t require the passage of a relevant law, the MP said.
This seemed to tie in with comments made yesterday by DISY no.2 Averof Neophytou, who said a deal with the troika could be clinched without additional legislation.
The situation remained hazy, however, as the troika team was said to be initially averse to the idea, given that it was far from clear how much cash the “solidarity fund” can raise.

The national solidarity fund
THE law passed on Friday creating a “solidarity fund” aims to bolster banks and the state during its state of emergency.
The fund aims to finance banks and the state whenever necessary, drawing funds from natural gas revenues and bonds that it will issue and sell.
Others sources of revenue will be company shares or bonds the fund will acquire and manage, some of the church’s wealth and some state property as well as donations from anyone wishing to contribute. It has been described as a fire sale of the county’s assets.
The idea of the fund was tabled as a means to collect the cash demanded by the troika – €5.8 billion – as Cyprus’ contribution to its bailout.
The scheme was rejected by the lenders.
One of the reasons was that they rejected the transfer of cash from semi-state companies’ provident funds into the fund while there were no guarantees that it would raise the necessary capital.
Provident funds will take a huge hit from the restructuring of the Popular Bank and a possible haircut of Bank of Cyprus deposits.
So far, no estimate has been offered as to how much the fund is expected to raise.
The fund will be managed by a seven-member committee – a chairman and six members – who will be appointed by the cabinet.

Capital control law
IN an unprecedented move for a eurozone member, parliament on Friday night passed legislation placing capital controls in a bid to avoid further destabilisation of its stricken-banking sector.
The law gives sweeping powers to the finance minister or the Central Bank governor to impose any of the following restrictions:

- restrict cash withdrawals
- ban premature termination of time deposits
- compulsory reprogramme maturing time deposits
- ban or restrict opening new accounts
- convert current accounts into time deposits
- ban or restrict non-cash transactions
- restrict use of credit, debit or prepaid cards
- ban or restrict cashing cheques
- restrict interbank transactions or transactions within the same bank
- restrict transactions between the public and credit institutions
- restrict movement of capital, payments and transfers
- any other control measure that the minister or governor will deem necessary under the circumstances for reasons of public order and safety
The measures do not apply to the government or the Central Bank.

Laiki bank will never be the same

IN WHAT has been the biggest protest yet, bankers demonstrated in their thousands yesterday as talks continued to avert Cyprus’ financial meltdown and resolve the banking crisis.
Protesters gathered in the afternoon outside the offices of banking union ETYK, which had said that it had become “obvious” that the banking system and the economy was being driven to destruction.
On the previous night, parliament approved bills on the resolution of banks and appeared ready to tax big savers, in a dramatic turnaround following Tuesday’s overwhelming rejection of a bank levy on all deposits agreed with the troika of lenders last week.
As negotiations and talks continued throughout yesterday, protesters marched from ETYK’s offices to the presidential palace, later moving on to the finance ministry and reaching the (empty) House of Representatives by evening.
Amid the sea of people, ETYK members expressed anxiety over the resolution of Popular Bank, their fears that the Bank of Cyprus would also be restructured and the uncertainty over their provident or pension funds.
There were points when anger overwhelmed individuals.
An ETYK member, wearing a bright orange traffic vest, was chanting slogans over a megaphone outside the presidential palace for protesters to copy when he suddenly faltered and shouted simply: “I’ve had enough.”
It was not the only time that same refrain was heard during the protest.
Chanting in unison, protesters shouted “hands off provident funds,” and “provident funds belong to our children”.
“You’ve heard the slogans. This is how people feel,” a 40-year-old Bank of Cyprus employee said. “This is unfairness in all its glory,” he said although he conceded that with Cyprus now facing an overhaul of the system, “perhaps a deposits haircut would have been better”. He was referring to the bank levy parliament rejected on Tuesday.
Asked what it was they wanted, people said that at the least they wanted their jobs saved and their provident funds safeguarded.
Nicos, a 38-year-old Popular Bank employee who had also protested outside parliament on Friday said that the issue was “about saving Cyprus” adding that the “state (would) collapse” if the banks were allowed to fall. A 45-year-old woman had said that she was not convinced that “sacrificing” Popular Bank would protect the Bank of Cyprus.
Protesters yesterday said they did not know what the future held for either bank, although some called for a deposits haircut across all banks. “Everyone should contribute,” one woman said.
As the time went on, people started discussing a possible strike even if the banks do reopen on Tuesday as planned. By the time the protest reached the presidential palace the one word protesters shouted in earnest was “strike”. Picking up a megaphone, a man said to general applause they would be there when parliament voted any further bills and would not go back to work if their jobs would be endangered.
A graffiti scribbled in red on the building adjacent to parliament read, “they invest, they lose, they lend out (and) you pay”. Another one talked of “robbers in a suit”.
ETYK said that there were many empty promises heard by many “and we do not want to hear any more”.
“We will not sit idle. We are reacting as of today,” ETYK said in an announcement.
Talking of the times to come, a 35-year-old man said he was “watching a horror film”.

A bank worker outside the finance ministry

IN WHAT has been the biggest protest yet, bankers demonstrated in their thousands yesterday as talks continued to avert Cyprus’ financial meltdown and resolve the banking crisis.
Protesters gathered in the afternoon outside the offices of banking union ETYK, which had said that it had become “obvious” that the banking system and the economy was being driven to destruction.
On the previous night, parliament approved bills on the resolution of banks and appeared ready to tax big savers, in a dramatic turnaround following Tuesday’s overwhelming rejection of a bank levy on all deposits agreed with the troika of lenders last week.
As negotiations and talks continued throughout yesterday, protesters marched from ETYK’s offices to the presidential palace, later moving on to the finance ministry and reaching the (empty) House of Representatives by evening.
Amid the sea of people, ETYK members expressed anxiety over the resolution of Popular Bank, their fears that the Bank of Cyprus would also be restructured and the uncertainty over their provident or pension funds.
There were points when anger overwhelmed individuals.
An ETYK member, wearing a bright orange traffic vest, was chanting slogans over a megaphone outside the presidential palace for protesters to copy when he suddenly faltered and shouted simply: “I’ve had enough.”
It was not the only time that same refrain was heard during the protest.
Chanting in unison, protesters shouted “hands off provident funds,” and “provident funds belong to our children”.
“You’ve heard the slogans. This is how people feel,” a 40-year-old Bank of Cyprus employee said. “This is unfairness in all its glory,” he said although he conceded that with Cyprus now facing an overhaul of the system, “perhaps a deposits haircut would have been better”. He was referring to the bank levy parliament rejected on Tuesday.
Asked what it was they wanted, people said that at the least they wanted their jobs saved and their provident funds safeguarded.
Nicos, a 38-year-old Popular Bank employee who had also protested outside parliament on Friday said that the issue was “about saving Cyprus” adding that the “state (would) collapse” if the banks were allowed to fall. A 45-year-old woman had said that she was not convinced that “sacrificing” Popular Bank would protect the Bank of Cyprus.
Protesters yesterday said they did not know what the future held for either bank, although some called for a deposits haircut across all banks. “Everyone should contribute,” one woman said.
As the time went on, people started discussing a possible strike even if the banks do reopen on Tuesday as planned. By the time the protest reached the presidential palace the one word protesters shouted in earnest was “strike”. Picking up a megaphone, a man said to general applause they would be there when parliament voted any further bills and would not go back to work if their jobs would be endangered.
A graffiti scribbled in red on the building adjacent to parliament read, “they invest, they lose, they lend out (and) you pay”. Another one talked of “robbers in a suit”.
ETYK said that there were many empty promises heard by many “and we do not want to hear any more”.
“We will not sit idle. We are reacting as of today,” ETYK said in an announcement.
Talking of the times to come, a 35-year-old man said he was “watching a horror film”.

A bank worker outside the finance ministry

THE RE-CREATION of the resistance hysteria of the 2004 referendum, when we heroically told the international community to go to hell and politicians were still boasting about it as recently as a month ago, lasted only a few days this time.
The TV pundits and politicians who were celebrating our deputies’ ‘resounding no’ to the Eurogroup’s proposal for a deposits levy last Tuesday have all gone silent. So have the deputies who had less than 48 hours to glory in their courageous act of resistance - or to be more precise stupidity packaged as resistance.
By Thursday evening, when news of the collapse of Laiki bank broke and it had become obvious that Mother Russia was not prepared to move her little finger to help poor, defenceless Kyproulla, Tuesday’s resistance heroes had lost their voice and will to fight for our dignity and pride.
By Friday they were all prepared to swallow their heroism and vote for the haircut of deposits, but it was too late. The haircut had been removed from the negotiating table by the Eurogroup, stunned by the universal criticism of its decision to support the bail-in of insured deposits.
Worse still, the terrible troikans were demanding that the Bank of Cyprus was also restructured, because under current market conditions its numbers did not suggest it was a viable concern. Hopefully our deputies will now have learnt to confine their acts of heroic resistance and bravery to the low-cost Cyprob because when they apply them to the economy, GDP contracts by several percent.

DID THEY not see how the former comrade president’s acts of resistance and bravery kept lowering GDP, dashing economic prospects and pushing the banks closer and closer to bankruptcy?
He put up a tenacious resistance to the troika, completely ignoring its proposal for months and, when he could no longer do that, refusing to sign a memorandum, thus laying the foundations for the economy’s meltdown.
Through his other acts of resistance he saved CoLA which nobody pays and the 13th salaries which only public parasites now receive. And he saved the semi-governmental organisations from privatisation, for a couple of months.
The comrade also ensured that his successor at the presidential palace would inherit a totally bankrupt Laiki, the state-owned bank that he allowed to draw €9.5 billion of emergency liquidity that it could never pay back without restructuring. He will of course claim that he knew nothing of Laiki’s problems, because the Central Bank governor he appointed to destroy the banking sector had not informed him.

GOVERNOR, Professor, Dr, Panicos Demetriades was the most successful appointment of the village idiot as he accomplished his mission to destroy Cyprus’ banking sector, as he had been instructed by our commie rulers.
On Thursday he saw his indefatigable efforts of the last 10 months come to fruition when he told the president that Laiki was insolvent and had to be restructured. It was also insolvent three months ago, but the professor was not so keen to re-structure it back then, because his comrade master did not want this to happen during his rule.
He would love to order the restructure of the Bank of Cyprus as well and he has the troika’s support, but- as this was being written - the government was fighting against it because it was aware of the devastation the restructuring would cause to the business world.
Professor Panicos saw his chance to wreak havoc in the banking sector by saying he was allowing the banks to open on Tuesday, something that would most certainly have sparked a bank run. Although at a meeting on Sunday at the presidential palace it was decided that the banks would not be opened on Tuesday, the day of the the vote on the haircut bill, the professor informed deputies on Monday that after consultations with the ECB, he had decided the banks would open for business.
When the president was informed of the governor’s intention he flipped his lid. He immediately issued instructions to Panicos to issue a circular informing the banks that they would not open for two days. What Central Bank Governor decides to open the banks when their opening is certain to lead to a bank run?
 
PANICOS, being a good socialist, had been advertising for months that the banks were bankrupt and needed restructuring. He did everything in his power to inflate their needs, preventing bank executives from even speaking to the consultants whom he hired to estimate their capital requirements.
This may have suited AKEL’s propaganda purposes, but only in Cyprus could the state have appointed a governor who did everything in his power to sink the ailing banks. In the end even AKEL turned against its appointee, party chief Andros launching a scathing attack on Panicos at a meeting of the party leaders.
The rest of the party leaders took digs at him, during Friday night’s parliamentary debate, for the Laiki ultimatum he issued. But if we are to judge the professor on results, we must concede he was a successful governor, because he achieved what he set out to.

AT THE BANK of Cyprus ‘grown men were crying,’ over the bank’s predicament, according to one executive. The top execs would go into the bank’s HQ and mope while they waited to hear news about what would happen to the once mightiest and wealthiest company in the country.
It was now at the mercy of the terrible troika technocrats. It is difficult to feel sorry for the dear B of C, whose pathetically weak board of gutless directors sat passively and awaited their fate, allowing Panicos to bully them into submission.
Although they knew the bank was in trouble for almost a year, the B of C directors did nothing to cut its massive payroll. It was the only business in the country that did not cut wages or benefits of its overpaid employees, in order to have a fighting chance of survival.
Until last June, when he was forced to resign the CEO Andreas Eliades, who had led the bank to the brink, was on an annual salary of €1 million, none of the directors having the guts to say anything in case he told them off.

WHENEVER Kyproulla is in trouble, rumours that Mother Russia is ready to come to our rescue start to spread. This trend dates back almost 50 years ago to the time of the Soviet Union, when the Kremlin’s puppets in AKEL would start spreading news of the Soviets’ imminent arrival to help us out.
We heard these claims on countless occasions before and after 1974, but the Soviets never arrived. This week everyone was placing their hopes on Russia saving us from the dastardly designs of the evil Europeans. The rumour mills were operating at full capacity and web-sites, seeking to boost hits, were reporting these fairy-tales, with Gazprom always starring.
On Sunday night, the authoritative state broadcaster, RIK also reproduced a Gazprom fairy tale. Its news boss, Yiannis Kareklas, interrupted the panel discussion he was hosting to give viewers news of a breaking story. Gazprom would offer the €17bn needed by the state in exchange for some of our plots and for participating in the liquefaction unit that we were going to build.
Kareklas said he did not know the source of this wonderful news and conceded that it had not been confirmed. However, one of his guests immediately seized this fib to strengthen his argument against the humiliating haircut imposed by the troika. With Gazprom coming into the picture we did not need the help of the Europeans.
CyBC’s pseudo-story had been picked up from the reliable Mega TV.

THE SOURCE of the Gazprom rumours could have been DIKO which had been pressuring the government to seek help from Russia. On Monday both the government and Gazprom denied the reports that they had been in contact, but this did not stop the rumour mills.
Gazprom had become the banner of all those opposed to the deposits haircut. We even heard that Gazprombank would take over bankrupt Laiki, presumably it is part of its policy to buy insolvent banks with debts of billions an no hope of  ever recovering.
Even after the denials, the ubiquitous TV economist Stelios Platis insisted in one of his television appearances that Gazprom would be coming.
And later in the week, the leading light of all ‘no’ campaigns, independent deputy Zacharias Koulias, angrily claimed that the president had refused to see a Gazprom representative that had visited the presidential palace.  

IT WAS inevitable that the opportunist Yiorgos Lillikas, another committed ‘no’ demagogue would try to exploit the opposition to the haircut for his personal ends. Standing in front of the sign ‘Candidate of the citizens’ he urged the legislature to reject the deposits levy and accused President Anastasiades that of having ‘low resistance’ in contrast to the heroic Paphite.
Had nobody told the candidate of the citizens that elections were over? They had, but after the president’s unpatriotic retreat at the Eurogroup meeting, the ambitious Yiorgos felt that presidential elections should be held because Nice Nik had ‘betrayed his mandate’. The country was in meltdown and all that the bash-patriotic Lillikas could think of was how to exploit the disaster to become president. 

THE PAPHOS demagogue congratulated the legislature for its historic ‘no’ which “protected our state sovereignty and national dignity.”
Yiorkos was not only engaging in cheap politicking. He had used his influence in the Russian Duma to seek help for his suffering country by writing to some inconsequential deputy (Mikhail Emilianov - first deputy-president of the Committee of Political Economy of the State Duma) asking for a loan between five to 10 billion euro, at an interest rate of 2.5 to 3 per cent.
He offered Emilianov the opportunity to invest up to 30 per cent in Cyprus’ energy infrastructure and - the real sweetener - shares in Laiki Bank. Emilianov and other deputies were to make efforts that the “Lillikas package” would be a basis of the negotiation between the governments of Russia and Cyprus.
In what capacity was Lillikas asking for loans and offering Cyprus state property to the Russians? Does our constitution say that failed presidential candidates can offer bankrupt banks for sale to other states?

FINANCE minister Michalis went to Moscow on Tuesday night and was there until Thursday afternoon, but the ‘Lillikas package’ was not discussed in his talks with his Russian counterpart; neither was Gazprom’s offer of a €17bn loan.
In fact, he got absolutely nothing out of Mother Russia, even though he offered gas exploration, a naval base (according to some rumours), energy infrastructure projects and of course shares in our flagship bank Laiki.
The Putin government did not even agree to extend the repayment period of the €2.5bn loan that the village idiot had secured at an interest rate of 4.5 per cent. It should be noted that the only assistance Kyproulla ever receives from Russia, is when we want a couple of words or phrases changed in UN Security Council Resolutions. 
There was one positive outcome from Russia’s snub. Lillikas disappeared from public view, embarrassed that his package for our rescue turned to be a bigger joke than the man himself. He may also feel it is not wise to appear after his vocal opposition to the haircut, led to the closure of the bank he wanted to sell to the Russians.  

THE CRISIS of the last week has produced a plethora of TV economists, as stations have been running non-stop studio shows covering developments and need guests to talk when there is no news to report.
The thing is that whichever channel you turn you are guaranteed to see the same faces. They are running from one station to the other in order to repeat the same stuff over and over again. The man with a record number of appearances must be Stelios Platis, who is everywhere, followed by Andreas Aloneftis who is happy to appear at any time of the day.
Platis, once a sensible commentator on economic issues, appears to have dumbed down and sounded a lot more like a politician than an economist. He has been passionately advocating the rejection of the haircut and a return to the Cyprus pound as well as claiming that Gazprom could save us.

IF THERE is one thing we learnt in the last week it is that stupidity remains invincible in Kyproulla, where deputies bank on the rejection of the haircut causing chaos in the European markets and forcing the Eurogroup to offer us a better deal. They should not lose hope because Gazprom is on its way.
T

THERE were mixed reports last night concerning the island’s bailout, with one report suggesting a deal had been struck while another said Cyprus and international lenders were not even close to an agreement.
There was no official confirmation of either report by the time the Cyprus Mail went to print.
Earlier, Reuters reported Cyprus had conceded to a one-off levy on deposits over €100,000 to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse.
Quoting an unnamed senior government official, Reuters said Nicosia had agreed with EU/IMF lenders on a 20 per cent levy over and above €100,000 at No. 1 lender Bank of Cyprus, and four per cent on deposits over the same level at other banks.
However, an hour or so later, the Cyprus News Agency, also quoting an unnamed Cypriot official, said the two sides were not even close due to the stance of the IMF, which tabled new demands “every half an hour”.
Reports suggested the troika were focusing on the resolution of the Bank of Cyprus.
Earlier yesterday, Finance Minister Michalis Sarris, reported "significant progress" in talks with international lenders, with the clock running down to an end of Monday deadline for Cyprus to clinch a bailout deal with the EU or lose emergency funding for its stricken banks and risk tumbling out of the eurozone.
His counterparts in Europe’s 17-nation currency union scheduled talks in Brussels for Sunday evening to see if the numbers add up, and the EU's Economic Affairs Commissioner Olli Rehn said progress was being made towards a solution.
Talks with the lenders continued at the presidential palace before a meeting between President Nicos Anastasiades and party leaders.
Anastasiades tweeted in the afternoon: "We are undertaking great efforts. I hope we have a solution soon."
The DISY leader was due to lead a delegation to Brussels, also today, to meet heads of the EU, the European Central Bank and International Monetary Fund, in a sign a deal might be near.
"Hopefully by tomorrow in Brussels we will have the agreement of our partners," Averof Neophytou, DISY deputy chairman, told reporters.
Government officials held talks through the day at the finance ministry with Cyprus''troika' of lenders - the EU, ECB and IMF. Angry bank employees demonstrators outside chanted "resign, resign!"
Sarris said yesterday talks with the troika were centred on a possibly levy of around 25 per cent on savings over and above €100,000 at failing Bank of Cyprus.
In a sign of how fluid the situation remains, however, a senior ruling party lawmaker said other options were on the table, including a "voluntary haircut" in exchange for equity that would not require parliamentary approval.
The EU's Rehn said the bloc recognised the progress made by the Cypriot government, and warned of tough times ahead.
"Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available," he said in a statement. "Today, there are only hard choices left."
It was far from certain that a majority of lawmakers would back a revised levy, or whether the government might bypass the assembly.
Racing to placate its European partners, Cypriot lawmakers voted in late-night session on Friday to split failing lenders into good and bad banks - a measure likely to be applied to No.2 lender Cyprus Popular Bank, or Laiki.
They also gave the government powers to impose capital controls, anticipating a run on banks when they reopen on Tuesday.
A plan to nationalise semi-state pension funds has met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a deposit levy.
The senior official who told Reuters of the levy agreement said the pension funds would not be part of the package to seal the bailout.
Under the latest proposal, Russians are unlikely to be hit hardest by the mooted per cent tax, given that just five percent of deposits at Bank of Cyprus come from Russia, according to the bank's latest results statement.
The board of the Central Bank of Cyprus was likely to hold its first meeting in almost a fortnight on Sunday, a source with direct knowledge of the meeting told Reuters, in another sign a deal may be close.
Asked about the new plan for a possible 25 per cent levy, Finnish Prime Minister Jyrki Katainen, whose country is allied with Germany in taking a hard line on Europe's debt-laden southern flank, replied in English:
"If it was like this, I think it might be quite suitable because it means that the highest deposits will be taxed."

Thousands of bank workers demonstrating in Nicosia yesterday (AFP)

IN CYPRUS we have a habit of blaming everyone else for our problems. We are always the victims of others, invariably foreigners who are hell-bent on causing us harm or destroying us, either because they are envious of us or want to subjugate us. This narrative has been used by politicians for decades as it allows them to absolve themselves of any responsibility for their poor judgement, mistakes and avoidance of difficult decisions.
The Christofias government and its loyal AKEL followers were the masters of this practice, blaming the continuously deteriorating state of the economy, over the last three years, on the world economic crisis, the systemic weaknesses of capitalism, the thieving markets, the neo-liberal ideology of the EU and, ultimately, the Cypriot banks. The government which was increasing its spending every year while revenue was falling, failed to protect the Cypriot banks from the consequences of the Greek haircut, refused to take measures to reduce the budget deficit and was excluded from the markets insisted that it was blameless. It was a victim of alien forces.
This political immaturity was at its apogee ever since the Eurogroup decision for a levy on deposits was announced last week. Politicians, newspapers and TV pundits launched a concerted attack on the Eurogroup for its lack of solidarity, the German government for its vindictiveness towards Cyprus and the IMF for its plain nastiness. While there may have been some justification in these emotional outbursts, nobody was willing to concede that, perhaps, we were squarely to blame for putting ourselves in the position of needing a €17bn loan to save our economy from bankruptcy.
It was not the Eurogroup who told us to live beyond our means for years, building up the public debt as the state gave annual pay rises of six to seven per cent, outrageously high pensions and obscene retirement bonuses to public employees who were constantly growing in numbers. It was not Germany’s fault that our populist politicians, whose only concern was their re-election, happily sanctioned this profligacy because it also benefited them, politically and financially. And the European Commission was certainly not to blame for the Christofias government continuously ignoring its warnings and exhortations to put the precarious public finances in order or that it stalled the talks with the troika for months, allowing the situation to steadily deteriorate.
The avoidance of responsibility and blame-shifting is always combined with a poisonous populism that has led us from one disaster to another. It was this populist mentality that caused all the parties to take an uncompromising stance against the deposits’ levy that President Anastasiades agreed with the Eurogroup last weekend. They claimed their heroic negativity would cause havoc in the markets and force the EU to re-consider its outrageous proposal, while they foolishly assured people that Russia would come to our rescue.
Not only was their folly exposed by Thursday when it became apparent there would be no help from Moscow, but the practical consequences of defiant populism were evident as the re-structuring of Laiki Bank was announced and the deposits levy was no longer an option. The government spent all Friday in efforts to prevent the Bank of Cyprus from suffering Laiki’s fate, bailing in uninsured deposits to the tune of 25 per cent as a compromise.
By Friday, populist deputies recognised that Plan A was not such a bad idea but it was too late. Not too late however, for some parties to carry on engaging in populist irresponsibility. AKEL abstained from the vote on the bill for the restructuring of the banks that was a condition for the bailout that would spare us from bankruptcy. It even proposed an amendment that if approved, would render the law unacceptable to the EU. It was rejected, a rare defeat for the politics of populist, which remains the root cause of all our problems. If it had been approved, there would be no bailout and economic catastrophe would follow, which our deputies could have blamed on our nasty partners’ lack of solidarity. The resolution of Laiki they had blamed on the governor of the Central Bank, as it had nothing to do with their rejection of the deposits’ levy on Tuesday.
Populism may have been shown up in the last week, but it was the politician who took the responsibility for a very difficult, but correct, decision that came under attack from everyone - President Anastasiades. It showed how much we appreciate real leadership in this country.

LIMASSOL district court issued an eight-day remand yesterday for a 34-year-old man suspected of killing a man and injuring four others after two separate shooting incidents in Larnaca’s Kofinou on Saturday.
Police are guarding the suspect in Limassol hospital after he crashed his car on Saturday afternoon after the shootings in the Aradippou-Avdellerou road where he was arrested in connection with the shootings.
The 34-year-old is suspected of attacking and killing a 54-year-old man and injuring his 27-year-old son, Giorgos, on Saturday morning at a Turkish Cypriot house in Kofinou that the father and son were working on at the time of the attack.
The shootings – with a Kalashnikov assault rifle – were reportedly over a dispute over the property that the 34-year-old had been lobbying the guardian of Turkish Cypriot properties to hand over to him but was given to Giorgos instead. Turkish Cypriot properties in government-controlled areas fall under the jurisdiction of this organisation that is part of the interior ministry.
After the first shootings, the 34-year-old then allegedly went over to a supermarket belonging to family who were given a piece of government land that he was also reportedly claiming. There, he shot two of the owners, two men aged 47 and 36, as well as at a 36-year-old woman who was shopping at the time. Another one of the owners, a 56-year-old man, managed to get the gun off of him and the 34-year-old allegedly left in a car.
The three people shot at the supermarket are very seriously injured, police spokesman Andreas Angelides said yesterday.
A plea for the rare type O negative blood has been going round on the internet and via mobile text messages for the 36-year-old mother of two, Katy Charalambous. She is in Nicosia general hospital.

THE US-brokered Israeli apology to Turkey has opened the door to the resumption of close relations between the two former allies and raised the prospect of energy collaboration in the eastern Mediterranean, raising questions as to the potential impact on Cyprus’ own gas plans.  
Last Friday, Israeli Prime Minister Benjamin Netanyahu expressed Israel’s apology to Turkish Prime Minister Tayyip Erdogan “for any mistakes that might have led to the loss of life or injury” during the raid on the Turkish ship Mavi Marmara, which tried to reach Gaza in 2010, resulting in the death of nine Turkish activists.
The next day, Erdogan said Israel’s apology highlighted Turkey’s growing regional clout.
“We are entering a new period in both Turkey and the region,” said Erdogan, who plans to visit the Palestinian territories, including the Gaza Strip, next month.
“We are at the beginning of a process of elevating Turkey to a position so that it will again have a say, initiative and power, as it did in the past,” he said.
Netanyahu, in a post on his Facebook page on Saturday, said deteriorating circumstances in Syria were a main factor behind his decision to resolve the crisis with Turkey.
According to Reuters, a source close to Netanyahu said the new chapter in Turkish-Israeli relations could be very important for the future not just regarding what happens in Syria but also developments in Iran. 
Apart from removing Turkish objections to Israeli participation in NATO exercises, the prospect of reconciliation has also “removed a big obstacle to collaboration over the development of strategic energy resources in the eastern Mediterranean”, reported the Financial Times (FT) yesterday.
The London-based paper noted that improved ties between Turkey and Israel could also affect Cyprus should greater energy cooperation result in Nicosia getting sidelined.
A Turkish official told FT that reconciliation also made a possible gas pipeline from Israel to Turkey a “much more viable” idea.
According to FT, Noble Energy and Delek Energy, who are the main investors in Israel’s large offshore natural gas fields- as well as partners in Cyprus’ Block 12- have in recent weeks “sounded out possible customers in energy-hungry Turkey”.
The paper noted that until now, the private sector was eager to proceed with a possible pipeline between Israel and Turkey but that the political rift between the two governments did not allow progress to be made. 
With the first step in reconciliation taken, will further collaboration in the hydrocarbons sector leave Cyprus with fewer choices as to where and how to export its own gas? 
Israeli deputy ambassador to Cyprus Shani Cooper said yesterday: “The normalisation of relations between Turkey and Israel was an important bilateral step but it will not affect any multilateral, trilateral or bilateral relations between Israel and other countries. Israel will maintain its close relations with Cyprus, and continue strengthening them as we have done the last few years.” 
Matthew Bryza, a former US ambassador to Azerbaijan, was quoted by FT saying that without Israel to provide economies of scale, “in the short term the Cypriots lose their ability to do a pipeline or an LNG (liquefied natural gas) option”, adding that in the longer run a Cypriot pipeline to Turkey would make most commercial sense.
However, speaking to the Cyprus Mail, an industry insider argued that a pipeline from Cyprus to Turkey was not so obviously beneficial, even if the financial savings appeared attractive at first glance.
“You’ve got a 25-year project. Are you comfortable having Turkey being your best friend for that length of time? With LNG, you can change your customers, do whatever you want. With a pipeline to Turkey, you only can sell to Europe, and the pipeline to Europe is too far,” he said.
The source argued that LNG was the best option for Cyprus: “The key is to find enough gas to make it commercial. And if you can add gas from the nearby Israeli gas field Leviathan, even better.” 
A Cypriot diplomatic source told the Cyprus Mail that reports suggest Turkey is seriously considering a pipeline between Israel and Ceyhan.
“This could very well be a game-changer. There is much more (to the apology) than meets the eye,” he said.
“It is naive not to think that they will put everything in one basket in the future: the Cyprus problem, hydrocarbons, Erdogan’s water pipeline project. All of this will come to a head,” he said, adding, “With Cyprus’ gas reserves, there is a light at the end of the tunnel, but let’s hope it’s not a train.” 
Regarding a pipeline between Israel and Turkey, another diplomatic source reminded that Israel has yet to even take a decision on whether it will allow the export of natural gas. The latest opinion of an advisory committee of the Israeli government is that if gas should be exported, it will have to go through Israel first.
The industry source argued that it was too early to tell whether a Turkey-Israel pipeline was even feasible both politically and physically.
One has to take into consideration the route that any pipeline would take. Will it pass through Lebanese and Syrian waters or go around them by cutting through Cyprus’ Exclusive Economic Zone (EEZ)?
“We’re talking about going up against horrendous engineering challenges. And it’s not just about building it, but maintaining it. It’s doable but it won’t be cheap,” said the source.
Should Israel and Turkey decide to go ahead with the pipeline, the industry source argued this would not affect Cyprus’ decision to build an LNG plant initially with one train to accept gas via pipeline from Noble’s Block 12 A-structure, which has an estimated 7 trillion cubic feet of natural gas.
The thinking behind the ‘stand alone’ project is to get gas from the Aphrodite field in Block 12 to the LNG plant earmarked for construction at Vassilikos by 2019.
“This is an aggressive, challenging but achievable target,” said the source. 
Should more gas be found in other parts of Block 12, or in the blocks recently acquired by French, Italian and South Korean companies, Total, ENI and KOGAS, then more trains will be built at the LNG plant to take in more gas. The current thinking is that Cyprus’ EEZ has plenty of potential for more hydrocarbon discoveries.
The source argued that a pipeline from Block 12 to Vassilikos and the operation of an LNG plant are not dependant on the inclusion of Israeli gas from the nearby Leviathan gas fields. In any case, should Israel agree to export its gas, it would have to build its own pipeline to Vassilikos as the depth of water in the region does not allow a big enough pipeline to be built to cover the needs of both Aphrodite and Leviathan fields.
Asked whether the current economic crisis in Cyprus could affect energy development, the source said only if the government should take its foot off the pedal, though at the moment, it “seems willing to proceed expeditiously”.
He added: “The whole project could provide very robust and meaningful amounts of money that would be coming into the country.”
Regarding press reports that Russia could participate in the financing of an LNG plant, the source said Russia would then have a say over the tariff charged to gas companies using the plant.
“If the Russians want to make a killing they will have very high fees, making LNG very costly, and as a result, Cyprus won’t make a big profit. If they’re reasonable, it could work. But you don’t want someone not totally trustworthy having their hand around your throat.”


 

MOST DUTCH think Cyprus should leave the eurozone even though the cost of a bail-out for the country would be tiny compared to the rescue for Greece, a poll published yesterday said.
More than half those surveyed, or 56 per cent, thought Cyprus should leave, according to a survey by pollster Maurice de Hond.
The results of the poll were published as Dutch finance minister and chair of the Eurogroup Jeroen Dijsselbloem prepared to meet other eurozone finance ministers to discuss a bail-out in Brussels.
The poll also showed that a majority of supporters of Dijsselbloem's social democratic Labour party think Cyprus should be helped to avoid going bankrupt.
The question on Cyprus was part of a broader opinion poll on political parties in the Netherlands, where the governing centre-right Liberal party and the social democratic Labour party won a total of 79 seats between them in elections in September last year.
But the poll showed that since then support has grown for strongly eurosceptic parties like the Socialists and the Freedom Party. This reflects widespread frustration at painful austerity measures being pushed through in the country.
The poll showed that if there were elections now, the Liberals would win 23 seats and Labour 18.
"The people who voted Liberal in 2012 but who have since left the party are very eurosceptic," said De Hond.


 

REPORTS in the British press yesterday suggested the UK government was working on a plan to airlift penniless expats back from Cyprus.
According to the Daily Mail, senior Whitehall sources said that if the situation spiralled out of control, British citizens who wanted to go back the UK would be offered airline tickets, and if necessary be given transport to the airports by British troops on the island.
The paper said the officials refused to discuss details of the contingency plan for expats, but ‘a well-placed source’ told them: “We are confident we will not need to put this plan into action. But clearly, we have to be ready to help British citizens in all circumstances, wherever they are in the world.’
The paper said there had been detailed talks between Downing Street, the Ministry of Defence and the Foreign Office on the plan to airlift Britons.
“This is something we have been looking at for a considerable period of time,” one insider told the newspaper. ‘We have been aware for many months that there was a possibility of something like this happening in Cyprus and we have taken the appropriate and prudent measures to prepare for it.
‘If British people cannot get their own money and want to come home, we have to help.’
The Daily Mail said the secret airlift plan included arranging extra commercial flights and paying for airline tickets for Britons who wish to return home but who could not get hold of cash or use their credit cards to pay for them. It is not known whether they will be expected to repay the Government when they reach the UK, it added.
“The detailed plans even cover the possibility that British subjects won’t be able to get to the airport if they cannot pay for transport or petrol for their cars. It is thought the British Army will lay on transport,” said the newspaper.
Last week several thousand expats with Cypriot bank accounts had had their pension payments frozen to protect them against a possible haircut on deposits.
And, on Tuesday, Britain said it had sent one million euros in cash to Cyprus aboard a military plane for its troops on the island in case cash machines and debit cards stop working. "An RAF flight left for Cyprus this afternoon with €1m on board as a contingency measure to provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely," the Ministry of Defence said in a statement.

HOUSE prices in Britain recorded their strongest monthly jump in three years in March partly as a knock on effect of the crisis in Cyprus, UK property analyst Hometrack said yesterday.
The 0.3 per cent rise was driven by a boost to London house prices, with concerns over the crisis in Cyprus and the eurozone likely to send more cash flowing into the English capital in the coming months, the study said.
The national increase in house prices this month marks the highest growth seen since March 2010. Prices soared by 0.7 per cent month-on-month in London, showing the strongest uplift since February 2010.
Three-fifths of London postcodes saw prices increase in March and London properties now spend just under five weeks on the market before they are snapped up - the shortest average time period seen since October 2007.
London has enjoyed strong demand from wealthy overseas buyers who see the capital as a "safe haven" from the troubles of the eurozone.
Richard Donnell, director of research at Hometrack, said that the latest crisis in Cyprus "will only serve to further boost the flow of international funds into the capital".


 

OVER THE last week most Cypriots have watched the dramatic events unfold with morbid fascination, aware that their lives were about to change in ways not seen since the Turkish invasion.
Yesterday as the denouement approached and the island’s fate was being brutally thrashed out in Brussels, the public response was a combination of fear, anger and plain fatigue.
“Do you understand what’s going on? Cyprus is destroyed,” a 55-year-old Cypriot woman living in London said. “I’ve been crying for days now.“
“It’s all horrible. I keep watching the news. I am depressed,” 56-year-old Margarita Xenofontous said.
“No one knows what they are doing, with no exceptions,” said Christina Theophilou, a 33-year-old mother of two who is pregnant with her third.
Referring to the eurozone’s finance ministers meeting yesterday, she said that she prayed the divine light would help them “do the right thing”. Christina is not religious, but like many others, the uncertainty is bearing down on her.
“I haven’t felt so uncertain about the future since I was 13 and Cyprus was invaded,” 53-year-old nursery teacher Dora Giorgali told Reuters yesterday. Giorgali lost her job two years ago when the school she worked at closed down.
“I have two children studying abroad and I tell them not to return to Cyprus. Imagine a mother saying that,” Giorgali said. “I think a solution will be found tonight but it won’t be in the best interest of our country.”
In Nicosia’s Ledra St yesterday, coffee shops, restaurants and many shops were open for business as usual. And, also as usual for Sunday, the street was packed. There was still the woman who sells local produce on the busy pedestrian street, the pop corn stand, and there were - as ever - families with small children buying ice cream. But a sign on a mobile phone store also said, “Cash only – until the financial situation is resolved.” And across town, around 200 bank workers demonstrated outside the presidential palace chanting “Troika out of Cyprus!” and “Cyprus is not for sale!”
Many yesterday sipping coffee and chatting in the busy coffee shops said they had had enough of the news.
A group of friends in their 30s, most of them civil servants, said they were escaping from the non-stop and “unreliable” news coverage and were “trying to forget”, although one of them admitted they were not doing a very good job of completely avoiding the subject matter.
A family of four said they had laid down a new rule from Friday: “no more news”. They decided as a family to tune in today and find out the aftermath of the bailout talks. “They tell us one thing, and then another,” Marios said, sitting next to his two sons.
 “Tell me anything you want, but don’t talk about the monetary crisis,” 57-year-old architect, Giorgos Fialis said in a down town coffee shop. “That’s why we are here,” he said. “We are discussing people, the theatre, anything else except (the crisis),” he said. His friend, 48-year-old Glafcos Theophylactou, a graphic designer and teacher, said that there are still “many beautiful things in life”.
Theophylactou tried to watch the news yesterday but gave up after five minutes. Better to wait until something is finalised, the two friends said.
But how can they keep away now? isn’t Cyprus’ history being rewritten?
“Without us,” Fialis said.

Cash only sign on Ledra Street in Nicosia yesterday

THE GENERAL view in Nicosia, after Thursday’s decision to restructure Laiki Bank, was that the road had opened for an agreement with the troika.
The legislature would approve the legal framework for the restructuring of the banks and the transactions’ controls on Friday night and the negotiations would then focus on how the remainder of Cyprus’ €5.8 billion contribution to the bailout could be raised.
There was another piece of ‘good’ news on Friday. The governments of Greece and Cyprus had reached an agreement over the transfer of the operations of Laiki and Bank of Cyprus in Greece to a Greek bank - Bank of Piraeus.
The Anastasiades government had complied with the orders of the EU which had set the reduction of the Cyprus banking sector as one of the conditions for a bailout. Greece’s government would pay €1 billion and Cyprus’ government €500 million for the re-capitalisation requirements of the Greece operations of the two banks.
One close associate of President Anastasiades was in buoyant mood on Saturday morning, saying that there would “almost certainly be a deal with the troika today, even if the Bank of Cyprus has to bail in depositors to the tune of 20 per cent”.
But the troika’s representatives had different ideas when they met Finance Minister Michalis Sarris and representatives of the Central Bank on Saturday morning. The government’s proposed haircut of between 20 and 25 per cent of the banks’ uninsured depositors was not satisfactory.
The troika had decided to change the rules of the game offering the government two options for the Bank of Cyprus, in the form of an ultimatum. It could be restructured (euphemism for controlled bankruptcy) like Laiki, or it could bail-in uninsured deposits by a percentage to be agreed, take over Laiki’s ‘good bank’ operations and undertake Laiki’s €9 billion debt to the European Central Bank’s Emergency Liquidity Assistance (ELA). The assets of the Laiki ‘good bank’ have been estimated by the troika to be €7 billion.
“If we take on an additional, several billion debt we would need to be restructured in a month from now, because the numbers just don’t add up,” said a Bank of Cyprus executive, unable to hide his incredulity. “The choice the troika has given us is bankruptcy now or in a month’s time.”
He said the only way the bank might have a tiny chance of surviving with such a prohibitive debt, would be if we returned to capital flow restrictions of the 1980s when there were tight controls and ceilings on money transfers out of the country.
The government dug in its heels refusing to make this choice, aware that the re-structuring of the island’s biggest bank would have devastating consequences for businesses, many of which would go under, if they lose their trading capital and are unable to borrow money from a contracting bank.
It is also a matter of rationality. Why should the Bank of Cyprus be lumbered with a crushing €9 billion debt, in exchange for taking over Laiki’s ‘good bank’ operations? Logically, it should have had the option of not taking over the ‘good bank’ and avoiding the debt. It could have carried out a haircut of uninsured deposits and opened for business as usual on Tuesday.
The troika refused to discuss this, its overriding concern being the €9 billion owed to ELA by the Central Bank of Cyprus which passed on the money to Laiki, over the last 10 months. Liquidity assistance is given to the national Central Bank which releases it to the commercial bank which, in turn, provides collateral for the funding.
In the case of Laiki, the Central Bank of Cyprus accepted as collateral, among other things, the €1.8 billion worth of shares issued by the government last May which were considered junk by the European Central Bank (ECB).   
“This is now a political issue,” said a banking source. “There are fears at the ECB that Cyprus would leave the euro and not repay the €9 billion owed to ELA,” the source said. “The ECB wants to protect itself and limit its exposure which is why it is eager to impose the debt on the Bank of Cyprus.”
By passing on the debt to the Bank of Cyprus, the Cyprus Central Bank could secure more sound collateral than it already has, but this would almost certainly reduce the ability of the former to draw liquidity from ELA. This is why the troika offered as an alternative the restructuring of the bank, the ‘good bank’ operations of which would not require ELA and thus the issue of the ECB’s exposure would be better managed.
The ECB has for some time been criticised for the ease with which it was offering liquidity to national central banks, for suspect collateral. Some of its critics had gone as far as accusing it of engaging in monetary financing. Being stuck with an exposure of €9 billion in Cyprus, would not affect the eurozone but it would leave the ECB open to more criticism.
And there would be questions as to why it allowed the Central Bank of Cyprus to carry on funding an insolvent bank?
This may explain why the ECB turned the screw on Cyprus last Thursday, taking the unprecedented step of issuing a public announcement that said the “Governing Council of the ECB decided to maintain the current level of ELA (requested by the Central Bank of Cyprus) until Monday, 25 March 2013.” It added that ELA “could only be considered in an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”
It was the first time the ECB had made such an announcement public. It led to the decision for the restructuring of Laiki and put the government under pressure to agree to whatever the troika would demand with regard to the Bank of Cyprus, which would not last the day if it reopened for business on Tuesday, without the ability to draw liquidity from the Central Bank. 

TRYING to avert a further ATM run on Cyprus’ banks, daily withdrawal limits were further limited yesterday across the two biggest banks.
The Bank of Cyprus said on its website that the maximum withdrawal amount had dropped to €120 while the Popular Bank limited daily cash withdrawals to €100 daily from 1pm yesterday.
Previously on Thursday, Popular set a daily limit of €260 on ATM withdrawals to cope with high demands as customers queued to withdraw funds after rumours that the bank was closing down.
A Popular Bank spokesman, who was not named, told Reuters the daily limit would remain in place until the bank reopens as scheduled on Tuesday, or until confirmation of continued emergency funding from the European Central Bank (ECB).
It is still unclear what will happen if and when the banks reopen although a legal framework was set on Friday by parliament placing capital controls to avoid further destabilisation of its banking sector.
The finance ministry is expected to issue an announcement clarifying what the restrictions will be and setting any further measures deemed necessary for reasons of public order and safety.
Bank customers have no idea what to expect if banks do open tomorrow.
Nigel Christodoulou, a 53-year-old married father of three said he did not know whether he would be able to meet his financial obligations because he gets paid in his UK account and transfers money to his Cyprus account every month to go towards paying bills.
He is in the rather unusual position therefore of actually needing to bring money in to Cyprus.
“Will I be able to carry on as normal, transferring money to go towards my standing orders?” he asked. “Will standing orders even work? What about online transactions?” 
Others were not sure if they will be allowed to transfer money from their Cypriot banks to accounts of their children, studying abroad. Some families have bypassed that problem by cash transfers via the post office, and with UK universities shut for English Easter that problem is pushed back for now.
The law gives sweeping powers to the finance ministry of the Central Bank governor to restrict cash withdrawals, ban or restrict interbank or same bank transactions, and restrict movement of capital, payments and transfers. It also allows for restricted use of credit, debit or prepaid cards, banning premature termination of time deposits and compulsory reprogramming of maturing time deposits.

REGARDLESS of what was decided at last night’s Eurogroup, on his return to Cyprus President Anastasiades should give serious consideration to removing the governor of the Central Bank, Panicos Demetriades from position. He may be an independent state official who has another four years of his contract to run, but a man who has caused such large scale harm to the country, either by accident or design, cannot remain in a post he has proved emphatically unfit for, for another four years.
Of course, it is not his fault that the previous president chose to appoint as governor a novice academic with limited understanding and no practical knowledge of the workings of the banking system, at a time when the banking sector was going through the most difficult period in its history. Laiki Bank was insolvent and the Bank of Cyprus was struggling to meet the capital requirements set by the EU for the end of June 2012, after the haircut of the Greek government debt. But even if the apprentice governor had theoretical knowledge of how the banking system worked, it was not evident in the way he went about the job.
In his first months in the job, he did little else than publicly criticise the banks, legitimising the government’s propaganda that all the economy’s problems were caused by the banks. He did his best to undermine public confidence in the banking sector, constantly talking about the need for re-structuring and downsizing. At the beginning of July, without an in-depth study being undertaken, the Central Bank leaked to a paper that the banks would need €10 billion for their recapitalisation needs. Demetriades saw himself as the punisher/destroyer of the banks rather than the man who would bring stability and confidence to the sector.
If the banks had such big problems, why did the governor not stop Laiki Bank drawing more and more liquidity assistance, allowing it to take in excess of €9 billion? Why did he not arrange for it to be restructured? Did he think we would not have to pay back the money, a big part of which was being sent to Greece for the obligations of Laiki’s subsidiary? It was criminally negligent for a governor who knew Laiki was insolvent and spoke of the need for its restructuring to keep giving it billions in aid.
His refusal to sit on the steering committee and have a say on the assumptions that Pimco would use to estimate the banks’ financial assistance was indicative of the man’s dereliction of duty, or perhaps an indirect admission that he would be out of his depth, unable to make a case against the knowledgeable technocrats of the troika. The results of this ineptitude or indifference are there for all to see.
The banking sector is in ruins and while the bankers have a big responsibility for this, the governor calculatingly made a bad situation much worse. This is why must he be relieved of his duties as soon as possible.