EVERY DAY seems to bring another piece of bad news regarding the state of economy, which has been in free-fall and has yet to hit the bottom. Since the first Eurogroup meeting of March 15, the situation has become worse by the day and there seems to be no end in sight. We may wake up one morning and find the country has completely shut down, crushed under the weight of its mounting, unserviceable debts with no banks, businesses or services able to operate.
We are not being alarmist, but pragmatic given the way things have veered completely out of control, the government powerless to stop the rut and our EU partners intent on revising their economic forecasts drastically downwards and making more demands of the bankrupt Cyprus state. On Wednesday night it was revealed that Cyprus would need to find another €6 billion to contribute to its bailout, after a ‘debt sustainability analysis’ showed that the financial situation is much worse than originally estimated.
Will the Bank of Cyprus’ uninsured depositors take an even bigger hit to cover this amount because it can certainly not be raised through taxes? And how long will it be before we are told that the €13billion we had to contribute to our bailout was not enough and an even bigger amount was required? We still do not know what ‘recommendations’ the anti-money laundering audit being carried out by Moneyval and Deloitte will eventually come up with and how these could adversely impact on the economy. For all we know, a bank may have to seek ECB approval before it opens an account for a foreign company.
The truth is that even after the ESM board of governors formally approves the proposal for a financial assistance facility agreement on April 24, the uncertainty and instability will remain. Friday’s announcement that the “Eurogroup is confident that determined action in line with the reform measures spelled out in the MoU will allow the Cypriot economy to return to a sustainable path based on sound public finances, balanced growth and financial stability,” could at best be described as wishful thinking and, at worst, a joke.
As countless economic analysts have pointed out, the numbers do not add up and the chances of macroeconomic targets being met are almost non-existent. Even the official debt sustainability analysis warned, “there is a non-negligible risk of a cycle of household and corporate defaults propagating through the economy, leading to further banking sector losses, worsening of labour market conditions, stronger than expected fall in house prices and a prolonged loss of business and consumer confidence.”
It happened in other eurozone bailouts and Cyprus will be no different, despite the Eurogroup’s confidence. This is why it is an imperative for the government to be prepared, exploring all options. Perhaps the economy’s interests would be better served if Cyprus exited the eurozone, defaulted on its debts and re-adopted the Cyprus pound. The government has taken a dogmatic stand against such a move, citing all the obvious negative effects, but the option needs to be explored and studied in-depth by experts.
The government should either hire a top consultancy firm or put together a team of economists, market analysts, technocrats, etc to carry out studies of the short- and medium-term effects of leaving the euro. The effects of staying in the euro and agreeing to a second and third bailout must also be studied. If we returned to the Cyprus pound, we may have recovery and growth sooner, but we may also have rampant inflation and be unable to import essential goods from abroad. Staying in the euro may protect what is left of people’s savings and ensure some economic stability but what good would that be in an economy expected to contract by more than 10 per cent this year?
Only once these options have been comprehensively investigated and reports prepared by experts can there be a proper debate on what must be done and an informed decision taken. The matter cannot be allowed to be resolved through slogans, rabble-rousing and emotional outbursts by populist deputies more interested in their re-election than the good of the country. We are now paying the very high price of this amateurishness and superficiality, with which we have approached issues of vital importance to the country, over the years.
The government needs to be prepared for the debate on leaving the euro that is certain to start as the country sinks deeper and deeper into recession. After all, the experts could conclude Cyprus would be better off out of the eurozone.

ON AUGUST 14, 2005, 33 children were orphaned overnight, their lives irrevocably changed.

These children are the living victims of the fateful Helios Airways crash that killed all 121 passengers onboard the Boeing 737 aircraft, including their parents and, in many cases, their siblings. 

On March 16, 2013, the majority of these same children became victims once again. This time, instead of being robbed of their parents, they stand to lose the compensation awarded to them following their parents’ death as part of the brutal haircut on bank deposits.

George Nicolaou and his wife are both 60 years old. For the past seven and a half years they have been the sole carers of their nine-year-old grandson, George, who lost both his parents and sister, in the crash. 

Nicolaou has been unemployed for two years. His wife stopped working when their grandson was born, to help look after him, because the couple’s son and daughter-in-law worked full time. Although the couple don’t have much money, they have managed to get by. They have also felt secure in the knowledge that they had around €1 million in a fixed deposit account with the Bank of Cyprus.

“This was the compensation he got for losing his mother and father and sister,” said Nicolaou. 

The figure is in fact the total sum of money that Nicolaou, his wife, their grandson and other family members all received as compensation for their loss. Instead of keeping their portion of compensation money themselves, however, the grandparents and other family members preferred to give it all to the orphaned boy. 

Today, given the terms of the bailout, his grandson might lose up to 60 per cent of that money and there was nothing Nicolaou could do to stop it. 

The bitter irony is that he had tried desperately to keep his grandson’s money out of the clutches of the EU and IMF lenders but was prevented from doing so by red tape.

“In the first few weeks of March I wanted to move his money. I felt things weren’t right with the Bank of Cyprus (BoC). I contacted a lawyer and he told me that because the money was in my grandson’s name I had to file an application with the court to take over the management of the child’s money. He said this process would take at least three months.”

Nicolaou said he feared his grandson could also lose the remainder of his money given the present state of affairs at the BoC.

“I want to move it to another bank or to split the money up into four accounts. I don’t know what to do. I just know that I need to protect what is left so that when he’s 18 he’ll have at least something to help him have a start in life,” he said.

“We have nothing to give him. If something happens, there’s no one to help him,” he added.

The grandfather said he and his wife didn’t know how long they would live and they worried what would come of the boy. Although he had aunts and uncles, they had children of their own to provide for, and they had all been comforted in the knowledge that at least the child had some money to give him an education. 

“We knew when he was 18 he would have some money to study. Now....,” said Nicolaou, his voice trailing off.

Continuing in a hollow voice, he added: “I feel anxious. Anxious about his future. A lot, a lot of anxiety.”

Nicolaou said had the first bailout package been agreed, his grandson would have lost only 10 per cent of the compensation money. 

“That would not have been a problem. It [10 per cent haircut] would have been the interest he’d collected so far. He would have just had to start over again. Now though, he’s lost so much. It’s just so unjust. You hear about so many bigwigs getting tipped off and moving their money. It’s so unfair. Other people make mistakes and other people pay,” he said.

In the meantime, the 60-year-old said he’d hired a lawyer to try to help him get access to the money to move it. He only hoped that he managed to do it before his grandson lost everything.

“The way the BoC is going I don’t know if anything will be left,” he said.

The government spokesman said yesterday that while George Nicolaou and the other orphans could not escape the haircut on their compensation, the government would do its best to reimburse them.

But the spokesman, Christos Stylianides, conceded there was no guarantee when this might happen or how much the children might receive towards covering their losses.

“Each individual case will be examined. They could be [reimbursed] the total amount [lost]. This issue will be the responsibility of the Labour Minister... The government feels very compassionate [about this issue] and there is the political will,” he told the Sunday Mail.

Despite the government’s assurances, the orphans’ relatives have understandable doubts to what extent its promise will stand. 

Neoclis Neocleous is another broken man. You can hear it in his voice when he speaks to you. 

“What do you want me to say? What can I do? It’s a mess.” The desolation the 61-year-old feels is almost tangible. 

Neocleous is the guardian of his two granddaughters aged 11 and 9. His daughter, the girls’ mother, and son-in-law, their father, was killed in the Helios crash. When the girls received compensation in the region of €1 million each for their parents’ death, he put all the money in Laiki bank for safekeeping. This sum was the total compensation received by all the relatives of the girls’ parents. The relatives kept none of the money themselves, preferring instead to give it to the orphaned girls. Some of the money was put in high-yield securities and the other in fixed-term deposits. Like any grandparent, Neocleous was looking out for his grandchildren’s future. Today, that future looks extremely bleak.

“These are minors under the state’s protection until they are 18. How can they come and take their money?” he asked.  

Like Nicolaou, Neocleous had tried to move his granddaughters’ money but his hands had been tied due to the lengthy court procedure to get access to it. Now, he doesn’t know if the two girls will see a penny of it.

The pensioner said he and his wife used to receive €270 a month for both girls from the social services but that last August the attorney-general (AG) had ruled that the children were not really orphans and that they should be exempt from receiving state aid. Nicolaou said he had also stopped receiving the same aid for his grandson on the same grounds.

“The AG ruled they aren’t really orphans because they are living with me and I am now their father. As if that’s even possible! Me? Their father? How does that even make sense? How is it possible? And this ruling comes from an AG who covered for his son. Do you see what goes on in this country?” he said.

Neocleous was referring to last week’s confirmed reports that the AG had suspended prosecution for his son’s driving violations.

Neocleous could not seem to get his head round the fact that his two granddaughters, two little girls who have suffered from the day they lost their parents, could be subjected to this from a state under whose care they were.  

“They are protected by the state, by the court, how could this happen?” he said.

The 61-year-old pensioner said he had no intention of taking this lying down and that he would fight this to the end, including going to the European Courts. 

“They don’t need the money for at least another six or seven years but I will get it for them,” he said.

Asked to describe how he felt since March 16, the grandfather said “despair”. 

“The children (his daughter and son-in-law) are being killed for a second time. This is Helios all over again. It is opening old wounds. These are two minors. Where is the justice now? This money is their parents’ lives. The pain of losing a child is indescribable. It is the ultimate pain. Everyone says they feel for you, but the reality is so much worse,” he said.

“I get by with what I’ve got, but what about these children. They live with deep insecurities and have been affected not only by the loss of their parents but now the loss of their money. They ask me about it. They ask me where will they go and who will look after them now,” he added, sighing deeply, like a man carrying the worries of the world on his shoulders.

Vassilis Koutsoftas, 62, and his wife Chrystalla lost their only son, daughter-in-law and five-year-old granddaughter, Chryso, in 2005. To this day they have been raising their grandson, Vassilis, who is now 10 years old.

Like the other grandparents, this couple put the total sum of compensation money their family received for their loss, in their grandson’s name. For safekeeping, they put the money in a fixed term deposit at the Bank of Cyprus. Although Koutsoftas is holding on to the hope that justice will prevail, and all the Helios orphans will be spared from the haircut, he doesn’t know for sure.

“The child’s future is at stake,” the 62-year-old car mechanic said. “He needs the money to give him a start in life.”

Koutsoftas said his grandson hadn’t made the money himself and that it had been an insurance payment from abroad so he shouldn’t be included in the haircut. 

“I’m old and he doesn’t have any parents to help him, so this money is to give him that help in life.”

Koutsoftas said he and his wife and discussed how best to address the money issue with the state psychologist their grandson saw once a month.

“We try not to talk about it in front of him but he hears a lot and we have been very anxious. He’s a very clever boy and doesn’t miss a thing. He knows something is wrong and has been asking about his money and if he’ll get it. He has so much to deal with and has had so many losses in his short life. How do I tell him he’s also lost the money?”

The 62-year-old said he could not describe the sense of injustice he felt for his grandson.

“It’s just so unfair,” he said.

His wife, who said her life stopped in 2005 and visits her son’s grave daily, said this latest horror was a bitter pill to swallow. 

“We lost our children. We got some money for the child. Now we’ve lost the money too.”

Sounding agitated and overcome with emotion, the grandmother said she had recently had to go through lots of paperwork to find her son’s, his wife’s and her granddaughter’s death certificates so that they could send it to the Central Bank. The idea behind these efforts is to try and secure exemption from the haircut for their grandson. The problem is, in doing this, all sorts of painful memories are relived anew. 

“We’re living through a second tragedy,” she said, her voice wavering. “What else can I say? I don’t know what to say? God will help us.”

Vassilis Koutsoftas pictured with sister Chryso lost his sister and parents in the Helios plane crash

Vassilis Koutsoftas put all the compensation money into a Bank of Cyprus account for his grandson

A PROBE is underway into possible criminal offences committed by Costas Ioannou in his previous role as head of the energy regulator.

A police spokesman said yesterday that depending on the outcome of the investigation, the force will recommend – or not - to the Attorney-general that the case warrants prosecution.

Last week the Cabinet took a political decision to sack Ioannou from his current position as head of the natural gas public company DEFA. The move followed a report submitted to the cabinet by the Attorney-general, with the government spokesman speaking of “serious misconduct.”

Ioannou, who has the right of appeal, has not been formally dismissed yet.

In a brief phone conversation with the Mail, Ioannou yesterday declined comment but said that he planned to contest the decision.

For their part, the police did confirm that the investigation into Ioannou draws on an ongoing civil lawsuit filed with Limassol district court.

The lawsuit concerns a licence awarded to a Russian company to operate a private power station. The licence was given in 2009 while Ioannou was chairman of the energy regulator, CERA.

To obtain the licence, the company had engaged the services of Andreas Hayiannis as a mediator/facilitator. Hayiannis is a relative of Ioannou’s.

PEC Powerenergy, the Russian company that Hayiannis was assisting, was a ‘special purpose vehicle’ whose ultimate goal was to sell its shares to another concern once it had acquired the licence from the energy regulator.

In addition to helping with the licence, Hayiannis’ arrangement with the Russian company also involved seeking out possible buyers for the Russian company.

But according to Hayiannis’ sworn statement, the deal went sour in 2011 when a British company acquired all the shares of PEC Powerenergy.

Hayiannis then sued the owners of the licence for not paying him his mediation fee.

Hayiannis says that in September 2011 he was approached by someone who informed him of the British company’s interest in buying out the Russian licence holders. According to him, this person had a personal relationship with a member of the energy regulator.

The first meeting to sound out the British company took place at Nicosia’s Hilton hotel in September 2011. Attending the meeting were representatives of Blue Tree Consultants, the aforementioned member of the energy regulator, a journalist, and the go-between who had found the British investors.

Blue Tree Consultants is a corporate consulting firm founded in 2008. Its CEO is Giorgos Lillikas, a former commerce and foreign minister and a candidate in the recent presidential elections.

Lillikas, Hayiannis and Ioannou hail from the village of Panagia, Paphos.

Speaking to the state broadcaster yesterday, Lillikas denied any wrongdoing or conflict of interest as he did not hold a ministerial portfolio at the time in question.

“The British company simply asked me to consult them,” he said.

Attempts to implicate him were nothing more than mudslinging, he added.

It’s understood that the police investigation against Ioannou will proceed regardless of the outcome of Hayiannis’ lawsuit.

Ioannou was sacked from DEFA by the cabinet last week

THE ELECTRICITY Authority of Cyprus (EAC) said yesterday it planned to resume supply cuts to customers with outstanding payments because the authority was facing severe liquidity problems.

"In cases of non-payment of bills, the EAC will have no choice but to shortly re-start cutting off electricity supply," it said in a statement yesterday.

It said it was facing liquidity problems because of a series of price cuts to customers and a reduction in its overdraft limits.

The 5.75 per cent surcharge imposed in 2011 for the Mari blast was recently scrapped by the energy regulator who also in February altered a formula for calculating EAC fuel costs, which has seen a further 4.0 per cent bill reduction on average. He has also ordered a further 5.0 per cent reduction on bills’ basic tariff rate, effective from April and May. 

The EAC had not cut power to customers caught up in the two-week closure of the banks in March, which further reduced cash flow.   

Also it says, some banking institutions have limited the EAC's overdrafts and so the authority is unable to draw on about €35 million it previously had access to, EAC chairman Charalambos Tsouris told journalists during a news conference yesterday.

EAC spokesman Costas Gavrielides said that at any given moment the EAC expects some €130 million to flow in from customers, a figure which includes late payments, payments that are due but not late, or in bills that are due to be sent out. This figure has now climbed by around €30 million, a phenomenon which began between 2011 and 2012, when the crisis started biting, Gavrielides said. He was not able to say yesterday how many customers were actually late in paying bills this year. 

He said that the EAC had been quick to announce that it would not be cutting off supply to people during a prolonged bank closure while Cyprus and its lenders were putting together a bailout programme. The banks opened their doors with capital controls on March 28 after two weeks.

“But many people and businesses just stopped paying altogether,” Gavrielides said.

In its statement, the EAC cited the series of reductions in electricity bills as also having contributed to its reduced liquidity.  "These reductions come alongside recent financial developments which have significantly worsened the electricity authority's liquidity," the EAC said.

"The EAC appeals to all its customers who have not paid their bills after the payment deadline to proceed with bill payments so that the electricity authority can also respond it its own obligations," the statement said.

The authority said some of those obligations, such as paying for fuels, could not be postponed. The EAC receives over 20 fuel shipments a year, at an approximate total cost of €650 million a year, the authority’s spokesman said.

The EAC posted about €95 million profit in 2012, an increase of €20 million from 2011. Some €48 million of the 2012 profit went to paying back debt.

Gavrielides also said that with reduced electricity demand, profits would fall by an estimated gross €40 million this year.

Despite that, the authority had introduced price reductions “for the sake of the country even if the move was not appropriate given the financial situation”.

The EAC has said it would soon be ready to submit a cost-saving plan to the authorities. The EAC had 2,370 permanent staff on its payroll in 2011, compared to 2,417 in 2010, according to the auditor-general’s 2011 report on semi-governmental organisations. On average in 2011, salaries, pension fund contributions and benefits cost the EAC close to €58,000 on average per person each year, the report said.

THE COMMITTEE of Inquiry appointed to probe into possible civil, criminal or political liabilities concerning developments in Cyprus’ banking sector and economy will hold its first public hearing on Friday.

According to an announcement, the three-member committee met yesterday at the Filoxenia Conference Centre, where the decision was taken to request the Finance Ministry’s permanent secretary Christos Patsalides to appear before the committee on Friday morning. 

Patsalides will be the first to do so.  The committee is made up of former and present Supreme Court judges, Giorgos Pikis, Panayiotis Kallis and Andreas Kramvis.

PRESIDENT NICOS Anastasiades has written a letter to European Central Bank (ECB) President Mario Draghi allegedly listing the shortcomings of Cyprus’ Central Bank Governor Panicos Demetriades, it was reported yesterday. 

In the initial letter, which was also sent to House President Yiannakis Omirou, Draghi reminded both men that a central bank governor could only be dismissed on grounds specified by EU law, adding that any dismissal would be subject to review by the EU’s Court of Justice. 

Speaking on Sunday, Anastasiades said he planned to inform Draghi about some incidents which he hoped would be taken to heart, hinting that had there been the proper supervision by European institutions, Cyprus wouldn’t be in the position it’s in now.  

Government spokesman Christos Stylianides yesterday confirmed that a reply letter had been sent and that parliament would be informed about the contents. 

According to state broadcaster, CyBC, Anastasiades replied to Draghi yesterday in a six-page letter, clarifying neither the government nor parliament had initiated proceedings to dismiss Demetriades. 

In the letter, the president allegedly critically examined some of the actions taken by the central bank governor since taking office last May. 

CyBC reported that Anastasiades referred to Demetriades allowing the uncontrolled flow of money from the ECB’s emergency liquidity assistance to Laiki. 

He also allegedly hinted that a measure of blame could be apportioned to the EU institutions, referring to violations of ECB regulations in the process.  

Anastasiades then highlighted Demetriades’ failure to include a thorough investigation of Laiki in the mandate drawn up for private firm Alvarez and Marsal, noting that the problem in the Cyprus banking sector was clearly much more serious for Laiki than Bank of Cyprus.  

The president also reportedly criticised Demetriades for his poor implementation of what has been agreed with the Eurogroup so far. 

Apart from the alleged contents of the letter, Demetriades also drew fire from coalition partners DISY and DIKO yesterday with MPs Prodromos Prodromou and Nicolas Papadopoulos both calling for his resignation during a daytime news show on CyBC.

THE FINANCE Ministry has further eased capital restrictions via an eighth decree issued late on Sunday. The new regimen will hold for a period of seven days.

Under the new decree, transfers per person are increased to €3,000 per month within the Republic, compared to €2,000 previously, whereas transfers of deposits/funds to accounts held in other credit institutions are raised to €50,000 per month per legal entity compared to €10,000. 

The decree further allows transfers of deposits/funds to an account held in another credit institution within Cyprus for an amount from €50,001 up to €300,000 for transactions that fall within the normal business activity of the customer, upon presentation of justifying documents, without being subject to the approval of a committee set up by the Central Bank.

Cashless payments and/or transfer of deposits/funds for an amount over €300,000 for transactions that fall within the normal business activity of the customer are allowed following approval by the committee.

The ministry clarified that bank transactions of up to €300,000 domestically, which it allowed in a decree published on Friday, were not allowed from one bank to another to an account belonging to the same individual.

Transfers of deposits/funds outside the Republic up to €2,000 per month, per person for each credit institution regardless of the purpose, are allowed. The €300 per day cash withdrawal limit remains in place.

SEMI-GOVERNMENT organisations (SGOs) have offered to come up with the money demanded by the troika in exchange for sparing them from privatisation. 

The Cyprus Telecommunications Authority (Cyta) and Cyprus Ports Authority (CPA) yesterday criticised the troika’s demands to come up with €1.4 billion through privatisations of SGOs, saying they believe they can use their own resources to cover the amount demanded by the troika as part of Cyprus’ bailout agreement.

Speaking after a meeting of the House Finance Committee, Cyta chairman Stathis Kittis said privatisations were not necessary, especially those that contribute to state coffers. 

“These organisations which contribute to the state and that are a part of the economic machinery of the state, providing financial resources to the state, do not need to be privatised,” said Kittis.  

He said Cyta and other SGOs could commit themselves to pooling resources to come up with a certain amount every year in order to collect over the next eight to ten years up to €2 billion to cover the €1.4 billion requested by the troika from privatisations.

Kittis highlighted that over the past four years Cyta has already returned to the state between €250m and €300 million, and that a much larger amount could be gathered with the help of other organisations.

CPA chairman Chrysis Prentzas said privatisation of the ports authority would not serve the public interest, adding that what was needed was the modernisation and restructuring of the organisations.

Prentzas expressed certainty that the CPA could make a substantial contribution to the state without the need for privatisation, noting that the authority expected to increase its revenue substantially with the development of Cyprus’ energy sector.  

The House Committee meeting discussed the 2013 budgets of both organisations. 

Cyta’s budget for 2013 foresees €485m in revenue (a reduction of 6.8 per cent compared with 2012) and expenditure of €438m (a decrease of 12.9 per cent compared to the year before). 

The 2013 budget for CPA forecasts revenue of €56m and costs of €38m. 

Kittis informed parliament that Cyta currently had €131m in deposits, of which €42m are in Laiki and €14m in Bank of Cyprus. 

The telecoms pension fund, worth €750m in total, has €72m in Bank of Cyprus, €84m in Laiki and €28m in bank bonds. 

The government has yet to complete its list of which organisations and funds will be exempt from the haircut on uninsured deposits imposed on the two banks.

The Ports Authority and Cyta say they will find the funds to satisfy the troika without privatisations

THE GOVERNMENT is to ease citizenship rules for foreign investors who lost money under an EU bailout deal, as part of a series of planned measures to salvage what it can of its reputation as a business centre.

President Nicos Anastasiades said new steps, mostly affecting the Russian business community, would be approved at a cabinet meeting.

Speaking at a Russian business conference in Limassol on Sunday evening, Anastasiades said the new measures would “mitigate to some extent the damage” Russian investors had endured.

In exchange for a €10bn rescue package, agreed by the EU and IMF, Cyprus must wind down Laiki Bank and write-off a large portion of secured debt and uninsured deposits in the Bank of Cyprus.

Russians have billions of euros in Cypriot bank deposits, and some could lose up to 60 per cent of their savings under a ‘haircut’.

Anastasiades said foreign investors who held deposits prior to 15 March, and who lost at least €3m would be eligible to apply for Cypriot citizenship.

And the existing “citizenship by investment” programme will also be revised to reduce the amount of investment required to be eligible from €10m to €3m.

The president said he would drop requirements for citizenship applicants to keep €15m in Cypriot banks for five years, saying they would be allowed immediate access to their money.

“These decisions will be deployed in a fast-track manner,” Anastasiades said at the Global Russia Business Meeting.

In his speech, the President said he was confident that Russian businesses would not leave the country despite the banking turmoil and any losses they may have suffered.

“Cyprus is neither a money-laundering hub nor a tax haven,” he said, adding: “What saddens me deeply - and I refrain from using the word angers - is that since the Eurogroup agreement was reached, some EU partners’ businesses and companies involved in the financial services industry have been preying upon our financial services sector, in order to encourage a re-allocation of funds into their economies. 

“Ironically, their governments claim that these funds were deposited and invested in Cyprus through money–laundering activities. This is obviously an absurd paradox,” Anastasiades remarked.

The two-day conference, which ends today, is being held at the Four Seasons Hotel.  Organised by Horasis, it is hosted by the Cyprus Investment Promotion Agency (CIPA).

Attending are hundreds of senior business and government officials from several countries. Keynote speakers include Igor Manylov, Russia’s Deputy Minister of Economic Development and Mikhail Kuzovlev, Chairman of the Board of JSC Bank of Moscow and Chairman of the Business Council for Co-operation with Cyprus.

Meanwhile the government is working on a raft of steps designed to reboot the economy in the wake of the massive restructuring of the country’s banking sector.

The policies are being framed by the cabinet which convened for almost five hours yesterday and will continue deliberations today.

According to commerce minister Giorgos Lakkotrypis, a top priority is the immediate launch of development projects.

Such projects would include the construction of marinas and golf courses, an energy centre and a technological park, as well as a focus on renewable energy sources such as photovoltaic units.

The labour ministry yesterday put forward a number of proposals to curb unemployment, including: subsidised employment programmes; granting state land to the unemployed for farming; coming down on illegal employment; removing unemployment benefits to those who reject three job proposals; introducing a scheme to employ 3,000 workers in the hotel industry; and extending the period that hotels remain open. 

Other employment proposals include: extending business hours for shops and companies; reducing working hours and salary; targeted vocational training; and a reduction in vocational training subsidies which currently stands at €8 per hour.  

According to state broadcaster CyBC, the ministry also proposed measures to reduce the cost of benefits provided mainly to foreigners in Cyprus, by replacing much of the amount with coupons, food and clothing while also introducing income criteria. 

The package of measures is expected to be announced later this week.

President Nicos Anastasiades speaks with participants of the annual charity walk for cancer, Christodoula March, on Sunday. He promises fast-track measures for economy

NOW that the disastrous bailout deal has been done and dusted other than receiving the necessary approval from a number of European parliaments, the government has set to try and put the country back together.

How they will do this to any great extent is anyone’s guess.

President Nicos Anastasiades began on Sunday with an address to Russian businesses. Other than relaxing the rules on citizenship for many of those who sustained losses in the deposits haircut, there was not much else to offer them except grand words all of which have been heard before.

‘Cyprus will offer favourable tax incentives for existing or new companies doing business here, encourage foreign investments, increase Cyprus’ competitiveness and creating a more effective and business-friendly environment.’

It all sounds a bit like clutching at straws. The financial sector is broken all trust is gone, and worn-out clichιs are not going to solve this. Why try to hang on to a business model the EU deliberately and methodically destroyed and has no wish to see resurface. Efforts should be focused elsewhere, and although gas has been cited as a sustainable replacement, it is very far down the road.

The cabinet yesterday began two days of meetings to work out a strategy for the shorter term. They will announce the measures on Thursday. According to Anastasiades’ speech on Sunday, there are major opportunities for growth in various sectors, such as shipping, tourism, large infrastructure projects, the film industry, education, health, research and development, and energy including photovolatics, all of which would be fast tracked.

The same things have been said for years, and in each of those sectors, the voices calling for law changes and investment were ignored because Cyprus was sitting pretty on a bloated financial sector that kept the economy flush. Research and development was bottom of every list, universities spent years pleading for investment as did those in green energy. Instead the banks threw their cash at worthless Greek government bonds.

If previous governments or parliaments had paid any heed, all of the sectors they’re now looking to save us, could have been fully developed over the past 20 years and the loss of the financial sector might not have hit as hard. But internal wranglings and vested interests have always got in the way of speedy lawmaking. 

The fallacy that it takes interminable discussions at government and parliamentary levels to get anything done in this country has also been exposed in recent weeks. When they want/have to, things can be done quickly at official levels. Witness the complete destruction of the economy, legally, in the space of a month.

Now that the economy has been decimated and the financial sector gone, all those other sectors are receiving the attention they should have had years ago. However investing in them now will take time and money, the latter of which is in short supply, leaving Cyprus once again paying the price for the procrastination of its leaders.

LARGE depositors who kept their money in the two biggest Cypriot banks stand to lose up to €8.3 billion through the restructuring of the two institutions, a European Commission document showed.

It is part of an estimated total €10.6 billion contribution from investors for restructuring the Cypriot banking sector, which also includes wiping out shareholders and bondholders in Laiki, or Popular, Bank as well as imposing losses on junior bondholders in the Bank of Cyprus and a deposit-for-equity swap.

Cyprus will close Laiki, its second biggest bank, and restructure its biggest, Bank of Cyprus, in return for an international loan of €10 billion over three years, without which the country would be unable to pay its debts.

The Eurogroup decision on March 25 set the terms of the bailout, which included massive losses for uninsured depositors with over €100,000 in Laiki and Bank of Cyprus. 

In a first for the eurozone, the two banks’ depositors are being forced to contribute to the recapitalisation of the institutions, along with shareholders and bond holders.

"The bail-in of uninsured depositors of Laiki and Bank of Cyprus will provide an estimated contribution to recapitalisation of €8.3 billion," said the document, dated April 12 and marked "final".

In a footnote, it added: "This is a maximum estimate. The final amount will depend inter alia on the conversion under the debt-for-equity swap in Bank of Cyprus and the recoveries of Laiki Bank."

A Cyprus Central Bank source said yesterday, however, that the total amount of depositors’ contribution cannot be calculated until the government completes its list of those organisations and institutions exempted from the haircut in the two banks. 

So far, these include educational institutes and municipalities, while a final decision remains pending on what to do with insurance deposits and provident funds. 

According to Reuters, the final version of the Commission document no longer makes the distinction - found in an April 9 draft - between gross financing needs, which include money that Cyprus can generate itself, and net financing needs, which is the amount Nicosia needs to borrow.

In the draft, the Commission said the gross financing needs of Cyprus between the second quarter of this year and the first quarter of 2016 would be €23 billion- €6 billion more than initially estimated last month- of which €13 billion would come from Cyprus.

That meant the net financing needs were €10 billion, of which the eurozone bailout fund, the European Stability Mechanism (ESM) would provide €9 billion and the International Monetary Fund the remaining €1 billion.

Of the €10 billion loan, €2.5 billion is earmarked for the recapitalisation of the rest of the restructured banking sector, in case more people than expected cannot pay back loans, money possibly needed to recapitalise the Hellenic Bank and the island's cooperative banks.

A further €4.1 billion of the loan will go to redeem maturing debt and €3.4 billion to cover government expenses.

The Cypriot banking sector got into trouble mainly because it lost €4 billion, or 22 percent of Cypriot GDP, on the restructuring of Greek sovereign debt last year, which itself was a condition for a second emergency loan package from the eurozone to Greece.

After the closure of Laiki, the sell-off of Greek subsidiaries of Cypriot banks and the restructuring of the Bank of Cyprus, the sector's size relative to the economy will have halved, to about 350 percent of Cypriot GDP.

Meanwhile, ratings agency Moody’s released a report yesterday stating the bailout agreement for Cyprus fails to address the island’s fundamental solvency issues, predicting a second memorandum for the struggling island and a continuation of the uncertainty over a possible euro exit. 

According to financial news site MNI, Moody's says if the deal is approved by eurozone parliaments, it will provide Cyprus with much-needed liquidity and reduce its risk of an immediate default.

It adds, however: "Despite the relief from liquidity pressure, Cyprus still faces formidable economic and financial problems. We believe that achieving debt sustainability will likely require additional official support or a restructure of existing debt, and therefore, we expect the risk of default and euro-area exit to remain elevated in the coming years".

Moody’s notes Cyprus will have to come up with an extra €6 billion through additional taxes, gold sales and potential further imposition on bank depositors.

The ratings agency expects Cyprus’ nominal GDP to contract by at least 12 per cent by 2015.

It adds that the immediate downsizing of the Cypriot banking system "fundamentally impairs the sector's potential contribution to growth for years to come".

The Cypriot banking sector got into trouble after the restructuring of Greek sovereign debt last year

Investigators on Tuesday searched for the person or group responsible for planting two bombs at the Boston Marathon finish line that killed three people and wounded more than 100 in the worst bomb attack on U.S. soil since September 11, 2001.

The U.S. Federal Bureau of Investigation led a battery of federal, state and local law enforcement agencies on the case, while critically wounded victims of Monday's blasts fought for their lives and others contemplated a new life as amputees.

The bombs ripped through the crowd at the finish line of the Boston Marathon, shattering the annual civic celebration on the Patriots' Day state holiday while tens of thousands of people packed the street to cheer on the runners.

The two devices using gunpowder as the explosive were packed with ball bearings and other shrapnel to maximize injuries, said a senior law enforcement official briefed on the investigation who declined to be identified because of the sensitivity of the information.

No one has been arrested in the bombing. A White House official said the case would be treated as an act of terrorism but it had yet to be determined whether the attack came from a foreign or domestic source.

US President Barack Obama promised to catch whoever was responsible.

"It is a criminal investigation that is a potential terrorist investigation," said Richard DesLauriers, the FBI special agent in charge for Boston.

Many runners were heading for the finish when a fireball and smoke rose from behind cheering spectators and a row of flags representing the countries of participants, video from the scene showed.

The two explosions came moments apart some four hours and nine minutes into the race, long after the world-class runners had finished but around the time average contestants were arriving.

'A LOT OF BLOOD'

"I saw people who looked like they had their legs blown off. There was a lot of blood over their legs. Then people were being pushed in wheelchairs," said Joe Anderson, 33, a fisherman from Pembroke, Massachusetts, who had just run the race holding a large U.S. flag.

Many of the victims were gravely injured, Massachusetts Governor Deval Patrick said.

Some suffered shrapnel wounds and amputations and will require repeat operations in the coming days, said Peter Fagenholz, a trauma surgeon at Massachusetts General Hospital.

Doctors treated 29 patients including eight who were in critical condition, Fagenholz said.

Many of the seriously injured patients had suffered bone, soft tissue and vascular damage to their legs, he said.

"We're seeing a lot of shrapnel injuries" from small metal debris, Fagenholz told reporters outside the hospital.

There had been "several" amputations, he said.

"A number of patients will require repeat operations tomorrow and serial operations over the next couple of days," Fagenholz said.

The dead included an 8-year-old boy, the Boston Globe reported, citing two law enforcement sources briefed on the investigation.

A 2-year-old with a head injury was being treated at Boston Children's Hospital, the hospital said in a statement.

The blasts put police on alert in major cities across the United States, including in Washington, D.C., and New York City, sites of the September 11 attacks.

The annual Boston Marathon, held since 1897, attracts an estimated half-million spectators and some 20,000 participants every year.

A video grab shows the victims of one of the blasts at the finish line of the Boston Marathon

REPRESENTATIVES of Middle East Airlines (MEA) yesterday held “preliminary contacts” with officials from national airline Cyprus Airways (CY) and the finance ministry. 

According to a CY announcement made to the Cyprus Stock Exchange in response to numerous press reports of a takeover, the airline clarified that discussions with MEA were at a very early stage and that no specific agreement had been reached.   

The airline reminded that CY has also engaged in discussions with other companies that have shown an interest in buying the state carrier, again with nothing specific to announce at this stage.  

Regarding the restructuring plan recently agreed between the government, unions and management, the airline confirmed that the CY fleet will be reduced to six aircraft plus one reserve.

THE CONSUMERS’ Association has warned people to be wary of special deals at supermarkets and grocers, as there are many instances when the packaging might be damaged or the expiry date too close.

“From our experience we know that during times of economic hardship, companies tend to release plenty of special offers to try and get rid of products that are either damaged or are due to expire,” coordinator for the Consumers’ Association, Giorgos Stylianou told the Cyprus Mail.

He added that the association was trying to put consumers on alert.

“Everyone needs to be more vigilant and careful and refrain from buying unnecessary products or buying in bulk if it is not needed,” a statement from the association said.

The statement went on to say that on March 15, on World Consumer Rights’ Day, Cypriot consumers suffered a big blow after receiving news of the EU’s proposed haircut on deposits. “Since those events, things appear to be a bit clearer, although the dangers have not yet been overcome,” the statement said.

The Association also reminded consumers that they can find out about dangerous products that have been removed from circulation on their website;  http://www.cyprusconsumers.org.cy/en/. 

They are also promoting the online, educational system DOLCETA, which is aimed at teachers and students and informs consumers of their rights and responsibilities.

The name DOLCETA was originally derived from ‘Developing On-Line Consumer Education and Training for Adults’.

The project started in December 2003 and aims to assist in raising the level of awareness and understanding of European consumer rights in the member states and to develop interactive web-based tools for consumer education to be used primarily by teachers, trainers and adult educators in educational institutions, government bodies with consumer responsibilities and consumer associations. The website is also available to individual adult consumers directly.

The topics are consumer rights, financial services, product safety, consumer education for teachers, sustainable consumption, services (energy, communications, transport), financial literacy for teachers and food safety.

Each module is designed to be accessible and user friendly and available in all the official languages of the 27 member states.

It was created by experts in the field of consumer protection, law and regulation at European and national level for each topic, in pedagogy and in on-line learning. It was tested with a mixed group of around 10 learners and/or teachers in each Member State, drawn from the target groups. It was also reviewed and evaluated by international experts and supported by an on-line users’ guide, web links, contacts and other sources of further information.

Consumer watchdog warns shoppers to check for almost-expired goods 'on offer'

THE GOVERNMENT yesterday welcomed the European Commission’s expression of solidarity with Cyprus and willingness to bring forward payments to Cyprus from the 2014-2020 EU budget to help it access much-needed funds in the immediate future. 

In response to a letter sent by President Nicos Anastasiades on April 9 requesting help to overcome the current crisis, European Commission President Jose Manuel Barroso proposed “frontloading” payments to Cyprus from the EU budget so that allocations for the next seven years are paid early to give the battered economy a boost.

In a return letter to Anastasiades dated April 15, Barroso expressed his “personal commitment to doing everything within the Commission’s power to help Cyprus return to a sustainable situation and to help mitigate the impact of the current crisis”.

He said the Commission would also offer Nicosia higher pre-financing rates and explore the possibility of increasing the size of the funds already agreed for Cyprus in the EU's 2014-2020 budget.

“With a view to delivering an impact on the ground as soon as possible I would propose to explore with the budgetary authority the possibility of frontloading future (EU budget) assistance for Cyprus,” Barroso said in the letter.

“This would require your administration to bring forward its planning of programmes and projects under cohesion and rural development.”

Also, Barroso said he would support a Cyprus request to join the future Youth Employment Initiative “on an exceptional basis”. 

Cyprus is to get €945 million over the next seven years as EU co-financing for various projects (€514m of cohesion funds) and as direct payments to farmers and for the development of rural areas (€431m).

Barroso proposed Cypriot and commission officials work together to develop a more detailed ‘needs assessment’ for Cyprus to channel help to the areas of greatest need. 

“Once we have agreed on such a ‘needs assessment’ we could see how to match all available funds to the needs identified. 

“In this context, I do not exclude seeking additional support from the budgetary authority, despite all the well-known difficulties currently associated with these matters at EU level,” said the Commission chief, noting however, that this was subject to unanimous member state support.

Barroso reminded Anastasiades that the Commission “had signalled very serious concerns about the situation in Cyprus in its different economic reports over quite a long period”. 

 “As far back as November 2011 we spoke to your predecessor about the need for Cyprus to enter into a macro economic assistance programme,” he said. 

With this in mind, the Commission made sure the particular needs of Cyprus as a remote island were taken into account when concluding negotiations for the next EU multi-annual financial framework (MFF), said Barroso. 

This resulted in Cyprus receiving an additional allocation of €150m under cohesion policy and €7m under rural development subject to a co-financing rate of 100 per cent. 

Also, the Commission made sure that Cyprus will be able to request higher pre-financing rates (1.5 per cent instead of the normal 1 per cent in both 2014 and 2015). 

Under cohesion policy and rural development, Cyprus will be able to request a 10 per cent ‘top up’ co-financing rate. 

This means that where the government would previously contribute 15 per cent of cohesion fund projects, or 50 per cent of European regional development fund and European social fund projects, they will now have the chance to contribute 10 per cent less, with the Commission filling in the gap. 

The government yesterday expressed its “satisfaction” with the solidarity shown in the letter. 

Government spokesman Christos Stylianides said the efforts undertaken by the president and government to secure additional European funds for Cyprus “seem to be bearing fruit”. 

Regarding the pre-financing options, he said teams have already been set up to prepare basic targets to seek these funds.  

The pre-financing and frontloading of projects will help Cyprus because there will be an increase of liquidity, which will in turn have an impact on the economy and state.   

Stylianides highlighted that the 10 per cent ‘top up’ of co-financing needs was “extremely significant” as it too would serve to increase liquidity and reduce the level of state contribution to projects.

Turkish Cypriot side wants ‘its share’ of the gold 

THE TURKISH Cypriot leadership is claiming rights to the state gold locked away in the Cyprus Central Bank and earmarked for sale to meet the country’s financing needs. 

According to Turkish Cypriot reports, the office of Turkish Cypriot leader Dervis Eroglu issued a statement in response to recent considerations to sell most of the gold bought by the Cyprus Republic in the 1960s. The government confirms that a gold sale is one of the options being contemplated to raise €400 million as part of the Cyprus rescue package, though the final word rests with the Cyprus Central Bank. 

The Turkish Cypriot statement notes that the Republic of Cyprus was established in 1960 as a common state between Greek and Turkish Cypriots and that all its resources, including the gold belongs to both communities on the island. 

Any income or assets, including gold or hydrocarbon resources, that belong to the Turkish Cypriots cannot be sold without their consent, it added. The Turkish Cypriot side did not however offer to share any of the income it has accumulated through the free use of the property and assets in the northern third of the island, which also belongs to both communities.

Meanwhile, Bayrak television has reported that Eroglu will meet with President Nicos Anastasiades for their first meeting since the latter’s election on May 22 at a social gathering. 

Green light for borrowers to renegotiate their loans  

THE CENTRAL Bank of Cyprus has asked the country’s financial institutions to give debtors impacted by the terms of the bailout a 60-day grace period to renegotiate their loans. 

Effective from yesterday, people who have been impacted in any way from the ongoing crisis either through the deposit haircut, or through losing their jobs or income, may visit their banks to discuss with them directly restructuring their loans “on the basis of re-evaluation of their ability to repay them,” the Central Bank said in an announcement. 

During the 60-day period banks will not penalise debtors who are late in their payments, effectively extending loan repayment deadlines by about two months. 

Meanwhile, Hellenic Bank said it was reducing its base lending rates from today “to contribute to re-starting the Cypriot economy,” the bank said in an announcement. 

The base rate for personal loans has been cut to 5.50 per cent from 5.75 per cent, and for businesses (including overdrafts) to 4.50 per cent from 4.75 per cent. Housing loans that were on a 4.40 per cent base rate have been reduced to 4.15 per cent, Hellenic Bank said. Housing loans that were tied to an older, higher, base rate are now on a 5.0 per cent base rate, from 5.25 per cent, the bank said. 

House must approve MoU says AG 

THERE will be no agreement with the troika unless parliament votes through the Memorandum of Understanding (MoU) and the loan agreement the government has agreed to, the attorney-general (AG) has said. 

Petros Clerides told state broadcaster CyBC that it was the opinion of the state’s legal services that the government needed to get approval from the House of Representatives on the MoU, if it were to be valid. 

Online news portal Sigmalive obtained a copy of the letter – already sent to stakeholders including the House President and the finance ministry – saying that the AG cited article 169 of the Constitution that states that Cabinet decisions relating to international agreements, among others, were not binding before parliament approved them. 

“The government clarifies that it will take any action that falls within the framework of legality,” acting government spokesman Victoras Papadopoulos said in a written announcement. 

Parliament had rejected the first bailout proposal that included a haircut across all depositors in local banks, including those with deposits of less than €100,000. Many had gathered outside parliament to protest the proposal, which was later replaced by a potential 60 per cent haircut in the bank of Cyprus and the resolution of Laiki (Popular).

THE GOVERNMENT conceded yesterday it was not on the same page with the Central Bank Governor, confirming the growing rift between the two sides.

“There is indeed a serious matter at hand...and it needs to be resolved,” Finance Minister Harris Georgiades told newsmen.

But, he hastened to add, the two sides are “obliged to come to an understanding.” 

One point of contention, said Georgiades, has been the Governor’s failure to swiftly appoint a new board to the Bank of Cyprus, an omission which has left the bank “rudderless.”

The government wants Bank of Cyprus to move away from its current status of being under administration as quickly as possible, even if that entails appointing an interim leadership, the minister said.

“The Central Bank had made a commitment that this status should not last beyond a couple of days. Unfortunately, two weeks have elapsed and the bank is still in administration, and this is a very serious issue,” he added.

Georgiades revealed also that he has sent Central Bank chief Panicos Demetriades a list of 14 persons as potential candidates for the Bank of Cyprus board.

He went on to censure Demetriades for having recently blown the whistle by telling foreign media that he was being undermined by the government.

While attending a summit of eurozone bankers in Dublin, Demetriades claimed the Cyprus Central Bank’s independence was being attacked by the government while at the same time his family was being threatened by people who lost money in the crisis.

Demetriades complained also that the government committed to selling state gold without first consulting him.

The governor has been criticised for his overall conduct throughout the banking crisis since taking over the regulator last May, but also for his day-to-day handling of matters in the days following the recent decision to wind down Laiki Bank and restructure Bank of Cyprus.

Some accuse him of misleading parliament regarding the mandate of the investigation by Alvarez and Marsal (A&M) into the activities of the island’s two biggest banks which have led Cyprus to the verge of bankruptcy. 

His critics argue that the A&M investigation was restricted mainly to investigating the Bank of Cyprus rather than Laiki - the main problem bank - despite parliament being told otherwise in a letter sent by Demetriades to the House Speaker in November.

The House Watchdog Committee plans to quiz Demetriades on this next week, in a bid to determine whether the banker had misled parliament; unless they get satisfactory answers, some legislators want to ask the Attorney-general to investigate the CB chief.

Dismissing the central banker is legally difficult, and besides the official has the backing of the European Central Bank. In a recent letter addressed to President Anastasiades, ECB boss Mario Draghi pointed out that a central bank governor could only be dismissed on grounds specified by EU law, adding that any dismissal would be subject to review by the EU’s Court of Justice.

Meanwhile the Central Bank yesterday asked commercial lenders to grant a 60-day grace period to people unable to pay back loans as a direct result of the Eurogroup decision of March 25. That decision wiped out uninsured deposits held in Laiki, and has frozen access to amounts above €100,000 in the Bank of Cyprus.

Such loans are not to be considered as non-performing during the grace period, the CB said, also urging banks not to charge interest on late payments or other charges.

Central Bank Governor Panicos Demetriades: not on good terms with the government

DESPITE the credit crunch, taxpayers are still footing the bill for projects that have yet to get off the ground, or for wasteful public organisations.

The National Health System (NHS) is one such venture that is a project on paper only. But so far €24m has been spent on the Health Insurance Organisation (HIO), the vehicle set up with the mission to implement the scheme. The NHS was supposed to be up and running by 2008; the date was later pushed back to 2012 and then again to 2015.

In her report for the year 2011, the Auditor-general notes that the lion’s share of expenses at the HIO consisted of a series of feasibility studies commissioned for the NHS. Other expenditures are for salaries (the HIO employs around 60 persons) and rent for premises.

Despite all the studies and the money poured in, the official goes on to say, it’s likely that the NHS would be operating at a deficit if and when it goes live. To cover the cost of the scheme, contributions by the active population would have to be substantially revised upward.

In the memorandum of understanding concluded between Cyprus and international creditors, authorities are urged not to proceed with the NHS unless they have previously updated an actuarial valuation report concerning the level of contributions to the scheme.

Meanwhile, the Mail is told, the HIO is currently employing 52 under-worked staff, among them one director at a pay grade equal to that of a ministry’s permanent secretary (€7,000 gross a month), as well as 14 senior officers at an A13 pay grade (€6,500 gross).

The Cyprus Cultural Foundation is another white elephant. The entity, tasked with implementing the much-vaunted Culture Centre in Nicosia, has already sucked over €22m from state coffers.

The foundation has seven permanent staff and one hourly-paid employee; its director earns €7,000 gross.

In a letter to the Finance Ministry dated March 21, the Auditor-general’s office inquired as to whether the Culture Centre would materialise; it has yet to receive a response.

A cap of €95m for the centre, spread over a period of three years, has been set in the construction bids. The 2013 state budget includes a provision for just €3m.

The initial intention was for the project to be co-funded by the EU’s Seventh Framework Programme (2007 to 2013). But to be eligible for those funds, the last payments on the project must be made by late 2015. Given that construction is estimated to take 35 months, building should have started in early 2013. That deadline has now passed. The project could conceivably still begin, with the government applying in advance for EU funding. But since the last payments would occur beyond 2015, the state would lose out on a part of the EU funds and would therefore have to absorb that extra cost.

In his book published last year, former finance minister Charilaos Stavrakis openly branded the Culture Centre a vanity project, writing: “If Nicosia had the size of New York and Cypriots the musical cultivation of Austrians, there would have been a slim chance of rational justification for this project.”

A great deal of waste has also been noted at the Technological University of Cyprus (TEPAK). As reported by Phileleftheros, TEPAK is renting out part of a building for €16,830 a month but is only making use of half of the surface area.

The building in question is located in Zakaki, far from the main campus. A source at TEPAK told the paper that half of the area being rented is idle, while the other half is used but intermittently.

The five-year rental contract spans 2009 to 2014, at a total cost of €1.19m to taxpayers. Although TEPAK is not obliged by law to invite tenders for the rental or purchase of premises, the Auditor-general nevertheless notes the absence of good governance regarding a number of rental deals made by TEPAK.

Artist's impression of the Nicosia cultural centre: building was to have started in early 2013

AUDITOR-GENERAL Chrystalla Georghadji yesterday slammed the years of complacency in Cyprus which have led to millions slipping through the fingers of the state, much of which is now unrecoverable.

During a briefing at the House Watchdog Committee,  Georghadji said the state is owed €1.6 billion in tax and other revenues, which have gone uncollected despite repeated warnings from her office over the years on the amount of money wasted across the wider public service.

While unpaid taxes now stood at €1 billion, she said, around €380 million owed to the state would now be written off in bad debts.

“That amount is likely to increase given the ongoing crisis,” Georghadji said, urging the state to at least make an effort to collect the unpaid taxes. “It is imperative that those whose deposits are inconsistent with their tax statements are investigated,” she said. 

Georghadji said the current situation clearly demonstrated the “huge importance of timely receipt of every due payment” to the state, suggesting that if this had been done, there may not have been a need for an EU bailout for the island.  

Over the years, Georghadji’s office has issued lengthy reports documenting waste across the government and semi-government sectors, recommending action be taken. But successive governments failed to act ignoring damning report after damning report, and ultimately passing on the problems to their successors. 

She said that a Greek-speaking member of the troika of international lenders who read her report on the state’s fiscal needs had expressed the opinion that if the Auditor-general’s suggestions had been followed over the years, “Cyprus would not need the troika”. The report was not translated into English because the cost was not covered under her office’s budget, she said.

Georghadji was clear that the need to pass measures now in order to get the €10 billion bailout Cyprus needed from its lenders was  far worse than what it would have cost successive governments if they had been proactive and followed her recommendations. 

For example, rather than working on immovable property tax in a rationalised and forward planning way “so that the adjustment was smoother, we are instead now obliged to act under the pressure of the memorandum (of understanding),” Georghadji said. 

She was referring to the need to update immovable property prices – still set according to outdated 1980 values. The issue was delayed and debated many times over but is now needs to be passed as a precondition for the lenders to release the first tranche of the bailout money.  The move is slated to bring in €75 million in revenue. 

Georghadji was not in a mood to cut politicians any slack yesterday.

When deputies asked her whether she was now more optimistic that in the future Cyprus, under the gun of the troika, could perhaps reach the level of transparency of Scandinavian countries in fighting corruption in the system given that actions was being taken on the banks and other sectors of the economy, Georghadji did not bite.

She told the committee she was feeling all the more pessimistic because of all the mistakes and omissions across the spectrum –  from the regulators to the banks’ boards: “Not even I could conceive the extent of entanglements, and tolerance that was shown  (to all of it),” she said. 

She wondered how things might have been had her office been allowed to audit the Central Bank and had an early insight into the state of the islands troubled main banks, Laiki and Bank of Cyprus, one of which is now out of business, and the other being restructured.

Georghadji said “impunity and tolerance” had prevailed for far too long but it was those who were not to blame who were paying the price.

Auditor-general Chrystalla Georghadji during a previous briefing at parliament where she has delivered many warnings

THE DISPUTE originated in the 1920’s when Germany issued series of bearer bonds in the USA for revitalisation of its economy following the devastating effects of WWI. Acting as trustees, financial institutions such as JP Morgan and Lee Higgins & Co. produced and sold bonds in America raising funds that would be invested in Germany. 

These bonds corresponded to Agricultural Loans signed by 14 German banks and guaranteed by the German government. Of these 14 banks four are still active and are part of the troika mechanism. 

From 1933, Germany defaulted on interest repayments to Bondholders, as the new Nazi leadership considered the debt that Germany faced following WWI as illegal and issued a moratorium on bonds owed to foreign investors.

In 1952 following years of German debt crisis, the London Debt Agreement restructured Germany’s debt to be sustainable by the agreement of its creditors.

The way this deal would function was to provide the option to the bondholders of German debt, to either accept the repayment terms of the LDA, or to forego attempts to claim their debt until 1993. The rationale being, that you can cash in today from a weak Germany, or wait for a full settlement after 40 years of German growth and development.

Assenting Bondholders: For bondholders who wanted to cash in their bonds immediately, they could receive partial payment, and new bonds, with a discount on the value of their bonds (depending on the issue, between 20% - 60%). For this to be implemented correctly, a procedure of Validation was set up to ensure that anyone presenting bonds for payment, could prove that they were indeed the beneficial owner. This would guarantee that all of the disbursements paid went directly to Germany’s creditors in the correct manor.

Non Assenting Bondholders: For bondholders who chose to wait for full settlement by their next generation in the future, their course of action was to maintain the debt instruments (the bonds) safely, and not request a settlement until the 40-year grace period had expired.

Validation boards were established in the three US states (where the bonds were initially sold) to carry out the compliance requirements for the bondholders who chose to accept the option presented in the LDA. Having performed their role, these boards were subsequently closed a few years later.

By 1993 the German government had succeeded in revitalising its economy and began to respond to requests for payment. Unfortunately, they chose not to honour their debt. To the surprise of many bondholders, Germany would receive payment applications with the physical bonds attached, perforate the bonds, and stamp them as invalid. 

The reasons given by the German Government and its subsidiary bodies are: Germany has compiled a list of Bond serial numbers that Germany considers stolen, and hence invalid. The procedure of validation must be complied with.

The German government claims that during WWII Russian soldiers looted the Reichsbank vault, where many bonds were kept, and that these bonds were reintroduced into the market for payment. The simple problem with this claim is that the only bonds that were in the German vault, had already been paid off or pledged, for which there is a public record, and no active bondholders had their bonds physically in Germany. Furthermore, the building which housed the Reichsbank had been completely destroyed, the contents of which had been removed by Germany before the arrival of Russian soldiers to Berlin.

The bonds were “bearer” instruments, and bondholders would cut off the coupons from the papers for their interest repayments. This claim however, was acceptable in the few years immediately following the war, as it was obvious bondholders would not be able to recover their principal or interest at the time, and was the reasons for the Validation Procedure outlined in the London Debt Agreements.

The so-called ‘Validation Procedure’ which was intended to apply to bonds that would be submitted for payment in 1952 added additional security requirements for the bondholder to comply with. Not only was it clear in the legislation that this only applied to Assenting Bondholders in 1952, subsequently indicated by the closure of the Validation boards, but it would be simply impossible for any bondholder to comply with them 40 years later.

When bondholders and creditors have asked to see this list, the German government categorically denied access, stating that it is not in their national interest, and has classified this list as a “national secret”.

What followed was a series of lawsuits in the US where German legal defence has never denied the liability for its debt, but has systematically used technical issues and delayed court cases, to the point that many bondholders have paid millions more in legal expenses. Many of these claims continue today, by some of the surviving bondholders, and the acquirers of that debt, and will be making appeals to the European Courts in the near future.

There is no question in the minds of the many experts in banking and law, with substantial knowledge of international financial instruments, that these bonds represent unpaid debt of the German government and its subsidiary bodies.

We, as a Cypriot company, have spent much time and resources acquiring, not only the bonds, but the wall of evidence surrounding the sovereign and national debt of Germany and the impressive ability of a great state to escape its obligations. For over three generations the same sovereign debt has been postponed and avoided. The inheritors and purchasers of this debt have been obliged to adopt expensive and cumbersome avenues, to force the German government's hand to respect and honour its obligations, a fundamental of our modern European society.

German economic historian Albrecht Ritschl argued in an interview with Spiegel in 2011 that Germany was ‘the biggest debt transgressor of the 20th century’. “During the 20th century, Germany was responsible for what were the biggest national bankruptcies in recent history. It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe's headmaster. That fact, unfortunately, often seems to be forgotten,” he said.

The undeniable truth is that authenticated bank bearer bonds worth $9,750,000,000, that’s nine billion seven hundred and fifty million US dollars according to the gold price of today, owned by a Cypriot company, issued on the back of German sovereign debt that remains unsettled.