THE GOVERNMENT yesterday made much of the inclusion of a hypothetical gas pipeline from Cyprus to Greece as part of broader EU efforts for energy independence and security.

During the European Council held earlier this week, President of the European Commission President Jose Manuel Barroso delivered a presentation depicting a subsea pipeline running from Cyprus to Greece through Crete.

The pipeline was featured on a map of the proposed Southern Corridor, which includes the Nabucco-West and Trans-Anatolian Pipeline as conduits bringing Azeri gas to the European continent.

Barroso noted that during the Council’s discussion on energy matters he stressed the importance of hydrocarbon reserves in the Levantine Basin and Cyprus’ prospect of becoming a regional energy hub. 

Even if theoretical, it was the first official recognition of Cyprus as a possible conduit for gas to Europe, leading the government spokesman here to assert that “Cyprus is now on the energy map.”

Most experts in the field agree that a mooted pipeline from the island to Greece would be hugely impractical and costly – if at all feasible – due to the long distances and the geology of the sea bed.

But mere mention of a pipeline connecting south-east Mediterranean gas reserves to Europe via Greece, and not through Turkey, is significant in a political context.

Cyprus’ official position so far has been against piping its potential gas reserves (and perhaps those of neighbouring countries) to Europe via Turkey.

The issue has broader political ramifications that touch on efforts to resolve the decades-long conflict on the island. Some argue that piping Cypriot gas to Turkey would be a win-win for both sides. Turkey, which does not recognize the Republic of Cyprus, says the island’s hydrocarbon reserves belong to both communities and that Greek Cypriots cannot be allowed to exploit them unilaterally.

Meanwhile some confusion was briefly caused here due to Anastasiades’ inadvertent use of the descriptor “southern pipeline” during a press conference after the European Council. 

 His “southern pipeline” quote was later reproduced by the local media, with some outlets adding to the mishap by transcribing Anastasiades’ remarks as “southern corridor.” 

  The matter was cleared up yesterday at a session of the House Commerce Committee by Charles Ellinas, chairman of the Cyprus National Hydrocarbons Company (CNHC).

 Ellinas explained to MPs that when one wants to describe a Cyprus-Greece pipeline , one should preferably use the term “southeastern Mediterranean corridor” or “South Med Pipeline”(a proposal backed by Greece and Italy) to avoid identifying with the “Southern Corridor,” the term widely used to refer to the Nabucco-West and Trans-Anatolian Pipeline.

 At any rate, as Ellinas later told the Mail, efforts by Nicosia to get the EU to recognise Cyprus as a hub for exports of southeast Mediterranean gas reserves are far more important than an Israel-Cyprus-Greece pipeline, which for the time being is “only an idea, for the long term.”

Also yesterday, commerce minister Giorgos Lakkotrypis told MPs he hoped Cyprus and US firm Noble Energy – which has a concession on offshore block 12 – would “soon” conclude a memorandum of understanding for developing an LNG plant on the island.

The MoU’s purpose would be to set up a joint venture between the CNHC and Noble. The joint venture would be a special-purpose vehicle seeking out investors for the LNG facility.

It would relate to the construction of a single train at Vassilikos – the proposed site for an LNG terminal – for the processing of natural gas believed to lie within Block 12. More trains could subsequently be added to the plant in the event of further gas discoveries in Cypriot waters.

Discussing gas at the House Commerce Committee (Christos Theodorides)

ALL available EU resources will be mobilised as quickly and as effectively as possible in order to help Cyprus, European Commission President Jose Manuel Barroso said yesterday.

Barroso was speaking at a joint press briefing with President Nicos Anastasiades following a meeting they had in Brussels.

The discussion, he said, focused on the very important challenges Cyprus faces. He further expressed his gratitude on Cyprus’ strong European commitment.

Cyprus is, and stays, firmly anchored in the European Union, he said, pledging that the EU is “determined to stand by Cyprus and Cypriots in these extremely difficult times”.

Anastasiades thanked Barroso for his interest and support and for his decision to establish a technical assistance support group in Cyprus so that the country’s economy could be revived and the necessary reforms implemented.

He assured that Cyprus would continue to deliver on its commitments and at the same time take the necessary measures for the recovery of the economy.

“It is important that our partners have recognised the sincere efforts of my government and the people of Cyprus,” he said.

In his statements Barroso also referred to the progress made on energy and taxation issues at the European Council on Wednesday, noting that “it is of course important for the economy of Cyprus”.

He further spoke of the adjustment programme agreed in March for Cyprus calling it “the key vehicle for a new departure for the Cypriot economy”.

“The situation in Cyprus proved that delays are very costly and those who suffer most from this are of course the citizens,” said Barroso. “For that it is essential not to waste more time”.

Barroso praised Cyprus for the agreement on the adjustment programme. “This is a very good sign which allows us to look ahead to the future with confidence,” he said.

He warned however that recovery would “necessarily take time”.

The dedicated support group would work with the Cypriot authorities to ensure that funding was channeled “where it is most effective” said Barroso. “It will also provide Cyprus with technical expertise to support the achievement of the adjustment programme objectives,” he said.

Referring to the Cyprus issue, Barroso said that during the meeting with Anastasiades he had reiterated the importance to move forward in order to reach a settlement.

“I have also assured President Anastasiades of my full support to the process and of my availability to upgrade and reinforce this support from the European Union, should the two parties request it”, he added.

President Nicos Anastasiades (left) with European Commission President Jose Manuel Barroso at their joint news conference in Brussels yesterday

Christofias releases financials to quash ‘malicious rumours’ 

FORMER President Demetris Christofias yesterday published his family’s accounts in a bid, as he said, to put paid to malicious rumours that members of his family are ultra-rich and that they transferred millions out of the country.

The accounts, prepared by Kyprianides, Nicolaou & Associates Chartered Accountants, compare the revenues and expenditures, as well as the assets and liabilities, of Christofias and his wife Elsi on December 31, 2007 and December 31, 2012 – roughly the period spanning Christofias’ presidency.

On December 31, 2012 the property of the couple was worth a total €341,901, compared to €315,704 on December 31, 2007. By the end of 2012, however, they owed €200,000, bringing their net worth down to €141,901.

The couple transferred to their son their residential apartment worth €484,980, and spent some €18,000 on their son’s studies. They also gifted €230,000 in cash to their two daughters.

Their total combined earnings during the period in question amounted to €914,336, and expenses to €1,088, 139. 

Christofias’ net income (salary minus taxes and contributions to AKEL) at the end of 2012 came to €764,658 for the five years he was president.

His spouse’s net earnings in the same period totalled €149,677. Christofias’ wife earns an income as a member of AKEL’s Central Committee.

In 2010 Christofias collected a little over €46,000 from his provident fund, and in 2012 cashed in a life insurance policy getting some €12,000.

Kolakides withdraws interest in BoC post 

MICHALIS Kolakides yesterday withdrew his interest for the CEO position at the Bank of Cyprus because of a disagreement over the duration of the contract, reports said. 

Kolakides had been selected by the BoC board on Wednesday but the final say on his appointment belonged to the Central Bank (CBC).

Reports said Kolakides had asked for a medium term contract while the CBC said it could not offer anything beyond the few months it will take until the first general assembly of the lender’s new shareholders.

The CBC could appoint Christos Christou, who was runner-up in the selection process. Christou had formerly worked for the European Bank of Reconstruction and Development.

In March, the Eurogroup decided to resolve Cyprus’ second biggest bank Laiki and transfer part of its assets to BoC while financing BoC’s recapitalisation by taking a chunk of uninsured deposits – over €100,000.

The affected depositors will receive equity in exchange and will decide on the lender’s new leadership after the restructure was complete in a couple of months or so allowing BoC to come out of administration.

So far 37.5 per cent of uninsured deposits in BoC have been converted to equity, whereas an additional 22.5 per cent remains frozen until the conclusion of an independent valuation of the bank’s balance sheet after absorbing the ‘good’ Laiki.

THE government will try to limit the losses of provident fund members to around 25 per cent of the amount they would have received before an EU decision to resolve one bank and raid deposits in the island’s biggest, the finance minister said yesterday.

Workers’ provident funds have been affected by a Eurogroup decision to resolve Laiki, the island’s second-biggest, and recapitalise Bank of Cyprus by raiding customers’ deposits.

The decision was part of a €10 billion bailout agreement with international lenders.

In a letter to the House President, Finance Minister Harris Georgiades said that an amount will be given from the bailout to compensate provident funds with deposits in Laiki, which is being wound down.

The aim is to keep their losses on the same level with those deposited in the Bank of Cyprus, which will undergo a so-called haircut whose rate has not been finalised yet.

Under the conditions of the bailout, uninsured deposits of over €100,000 could be cut by 60 per cent to finance the lender’s recapitalisation.

Depositors will receive equity in exchange for their loss.

The state will also provide additional compensation to those eligible, paid when they retired or in the event of death or total disability, the minister said.

“The objective of the above actions is to limit the loss for affected members to 25 per cent of the amount each member would have received,” Georgiades said.

Participation in the programme would be mandatory for provident funds in Laiki while those in the BoC would have a choice.

Either participate in the scheme by handing over BoC shares of equal value or keep their shares and stay out.

POLICE are investigating the attempted murder of a 39-year-old Georgian woman in a shop in Ledra Street yesterday. 

The woman, who was stabbed in the back was taken to Nicosia General Hospital and operated on. Her condition is considered critical. 

According to a police spokesman a Kurdish man entered the shop she works in, at around 3.30pm, argued with her and allegedly stabbed her in the back.

Witnesses at the scene told the Mail the woman, who was alone in the shop at the time, came out with blood dripping from her back and stumbled into the middle of the road, as her assailant ran off.

“We had to take five scarves from my store to stop the bleeding,” a shop owner Alexandros Kozas, said. Reports claim the Kurdish man had been involved in a heated argument with the victim’s brother days earlier and had been punched in the face, leaving him with several broken teeth. 

According to Kozas, the suspect had visited the woman, who is believed to be of Armenian descent, on Wednesday demanding money to repair his broken teeth but had been turned away. 

Yesterday, he returned to the store, allegedly with a knife and plunged it into the woman’s back after she again refused to give him money.

“They argued and when she refused to give him any money, he stabbed her in the back and ran off,” Kozas said. Police are still searching for the Kurdish man, who they said has had run-ins with the law before.

A police officer collecting evidence at the scene of the stabbing yesterday afternoon

THE DINNER for President Anastasiades and Dervis Eroglu that would be hosted by the UN Secretary-General’s special representative Alexander Downer will go ahead as planned even though the date has reportedly been switched to May 30. It will supposedly maintain its social character, as Anastasiades had demanded in the letter he sent to Ban Ki-moon last Friday.

In his letter the president complained that Downer had tried to turn the dinner into a political event despite having given assurances to the contrary. He felt that Downer’s associates “had leaked to unauthorised individuals inaccurate information, with the result of the undermining of our credibility and the creation of the mistaken impression about the resumption of the peace talks.”

There has been no official explanation about the inaccurate information that was leaked. A press report claimed the straw that broke the camel’s back was the UN’s request to be informed whether the Greek Cypriot negotiator would attend the dinner despite knowing that Anastasiades had no intention of appointing one at this time. Perhaps we are unaware of the intricacies of dinner diplomacy, but for the layman this seemed like the proverbial storm in a tea-cup. 

Perhaps there were other goings-on that were not specified in the letter, but even if there were, they could not justify the knee-jerk reaction and brash tone of the letter. The strange thing was that Anastasiades had always enjoyed a very good relationship with Downer, meeting regularly with him and never participating in the concerted attacks on the Australian by all other parties and leaders. Did he feel obliged to adopt a more confrontational approach now he was president, or was he trying to keep his rejectionist alliance partners happy?

His angry reaction may have had something to do with the revelations that he was in possession of a 77-page UN document, listing the convergences and divergences of the talks, about which he had kept the National Council in the dark. Perhaps he thought that sending an angry letter was the best way to shift public attention away from this omission, which the opposition parties took exception to. This would also explain why he made his letter public on the very same day he sent it, probably before anyone at the UN headquarters had read it.

Making the letter public gave the impression he was playing to the gallery rather than voicing legitimate concerns. If he had concerns these should have been conveyed to Ban in a confidential letter. By going public, he sparked another bout of Downer-bashing by the political parties and calls for the Australian’s replacement. While this will not happen, after the four years of work Downer and his team had put into the peace efforts, all the president’s letter achieved was to give more ammunition to the campaign of opponents of a settlement.

It was not a smart move, if he remains committed to reaching a deal.

CYPRUS yesterday accused the troika of distorting information in a document purportedly summarising the island’s status vis a vis anti-money laundering (AML) measures by “drawing inferences” where none existed in the original reports.

The original four-page summary, based on audits by the Council of Europe’s money-laundering watchdog Moneyval and by private auditors Deloitte, had been drawn up by international lenders prior to a Eurogoup meeting on May 13 to approve the first tranche of the island’s €10 billion bailout programme.

Yesterday the Central Bank of Cyprus (CBC) said the summary did not give a synopsis of the main findings “but rather a description of the perceived weaknesses of the system, drawing inferences where none exist in the original reports.”

 “The lack of consultation with the authors of the reports and the failure to refer to any of the positive aspects mentioned therein, has resulted in erroneous and distorted conclusions in the media, especially the international press,” the CBC said in a statement. 

“A summary of the reports cannot be considered balanced if it omits to mention that  they reveal a number of strengths both in the Cypriot AML framework and in the effective implementation of customer due diligence by Cypriot banks.”

The CBC said the authorities were in the process of providing a detailed response to the troika as well as to the Eurogroup. 

An independent audit of Cyprus’ implementation of AML measures was set as a precondition for an international bailout. 

Cyprus initially resisted the idea, arguing it had already been cleared in a prior assessment by Moneyval.

The government later backed down and agreed to a fresh review, one by Moneyval and a parallel one by private auditor Deloitte.

The summary said that between 2008 and 2010, Cypriot banks reported not a single suspicious transaction under anti-money laundering regulations, and flagged only one in 2011 and “a few” in 2012.

This despite Deloitte’s forensic analysis of sample customer transactions during its short investigation, identifying 29 potentially suspicious transactions during the last 12 months, none of which were reported by the Cypriot banks.

However, the summary had failed to mention that the 29 potentially suspicious cases had been identified in an analysis of 590,000 transactions, the CBC said in its statement.

Among the positive aspects the CBC listed as being absent from the troika summary was the fact that Deloitte also said Cyprus had a stricter legal framework beyond normal EU standards.

“In the audit for compliance with the CDD (customer due diligence) requirements of the Cyprus legal framework, it is worthy of note that these requirements are more detailed, and to a certain extent prescriptive, than in many other jurisdictions, including other EU Member States that similarly have implemented the requirements of the Third Money Laundering Directive,” the CBC quoted Deloitte as saying. 

Cyprus also had a solid level of compliance on CDD across the sector and displayed strong compliance in the identification of customers, it said. 

“For international business, most customers are corporate entities and supporting documentation is obtained to confirm the identification of the customer, the directors and the owners. Although some of these structures are complex and can involve legal entities in two or more jurisdictions, there was a consistency in the responses of the banks that they are required to, and do in practice, identify all relevant parties through all layers of these structures. The assessors did not come upon any examples to suggest lack of understanding or weak compliance on this aspect.”

In its statement, the CBC said there was no reference to or indication of systemic deficiencies and in contrast to the summary, the reports “indicate that the standard building blocks are in place, the AML preventive measures and procedures in banks are generally sound, and, generally, the banks have a high level of compliance with the statutory and regulatory requirements, which in some areas are more demanding than EU and international requirements. Some weaknesses are identified in the reports, but the general picture portrayed is not negative, something that is not reflected in the summary paper”

“AML is a challenge for all the international community. There is no perfect system that can guarantee the complete elimination of money laundering risk, as shown in the evaluations of the AML framework of countries in the relevant Moneyval and FATF reports. In addition, it should be stressed that no benchmarking of the Cyprus AML audit results was carried out, as this was a unique, focused and exceptional evaluation procedure not carried out in other countries,” the CBC said.

Echoing the CBC, a statement from the finance ministry said the nature and depth of the assessments done on Cyprus were “unique and have never been carried out in any other jurisdiction”. 

“The outcome of the assessments by the two institutions indicates a solid level of compliance across the sector,” the ministry said.

The CBC said the authorities were in the process of providing a detailed response to the troika as well as to the Eurogroup

A FLOWER festival will be held in Paphos tomorrow in aid of more than 550 families in need.

The event is being organised by a group of local volunteers who have now officially registered as a charity with the name ‘Solidarity’.

Ongoing fundraising events are raising money, food and clothes to help the families who are not officially entitled to assistance as they fall outside municipal boundaries.

Pavlina Patsalou who heads up the group along with Paphos councillor George Sofokleous, have been feeding hundreds of Paphos families for 20 or so months. They started with 20 families, and now numbers are in excess of 550.

According to Patsalou, from about 3pm tomorrow, volunteer children will stick all of the flowers on the floats. Younger children must be accompanied by a parent, and twelve to seventeen year olds are welcome.

She said there would be many things to do at the event and although entry is free, there will be a charge of two or three euros to play each of the games. This will go towards helping to feed the needy families.

In addition, visitors are requested to bring with them donations of food and other items.

Traditional food, such as souvlakia will be served at the festival. There will also be hot dogs, doughnuts and crepes, as well as traditional music and dancing. There will also be horse and pony rides, clowns and face painting and municipal train rides.

“We have five hundred and fifty families from the Paphos villages coming to us for help, and the number is still growing on an almost daily basis,” said Patsalou. “We are seeing more and more young Cypriot couples in their early to mid twenties who have children and have lost their jobs. They are desperate and their families can’t help them as they don’t have jobs either. Most arrive at our doorstep on foot as they have no money for petrol to put in their cars, some don’t have electricity or telephones. The situation is terrible.”

She also estimates that by September the number of families they help will have risen to 700.

Although the charity says that donations have been coming in thick and fast, more is still needed.

“How can we raise enough money to feed more and more mouths? “ said Patsalou. “We urgently need everyone to give something, however small, It will make a real difference to someone’s life. It could so easily be any of us without food or any money to pay our bills and cover our day to day needs.”

The flower festival will run from 4pm to 8pm at the Municipal gardens.

For further information contact Pavlina Patsalou at 99220152 or George Sofokleous at 99542343

www.solidaritypaphos.com

THE TRIAL of the two Greek nationals, accused of murdering five people in Ayia Napa in June of last year, was offered testimony from the prosecution’s first witness yesterday. 

The two men, Demetris Mamalikopoulos, 29, and Anastasios Tsehilides, 41, are accused of murdering five men – three Greek Cypriots and two Romanians on a side street in the heart of Ayia Napa’s nightclub scene, near the popular Red Square bar. They are also accused of illegally possessing a Glock handgun and illegally possessing and transporting explosive material.

The two defendants, who were hand-cuffed, were taken to court under a large police presence and were escorted by members of the anti-terrorist unit. Anyone entering the courtroom was thoroughly checked, including journalists. 

The court yesterday heard the testimony of the prosecution’s first witness, Famagusta CID police officer, Stavros Vasiliou who was in charge of gathering evidence against the suspects.

Vasiliou’s testimony, totalling 35 pages, included evidence taken at the murder scene, hard-drives containing CCTV footage from shops and bars near the murder scene. CCTV footage was also taken from Ayia Napa Church’s Sunday School cameras.

Prosecutor, Andreas Aristides submitted two hard-drives to the court yesterday containing CCTV footage from Larnaca Airport showing the two suspects.

They were arrested on July 2 last year in Greece after fleeing the island and it was discovered that they had arrived in Cyprus four days before the shootings took place and that they also travelled to the island on two separate occasions at the start of June.

Aristides asked the Criminal Court to bring two 50 inch televisions into the courtroom so the video evidence can be shown. He also asked for court employees to make arrangements for the windows in the courtroom to be blacked-out so the videos could be seen better. According to the prosecution, the audio-visual evidence for the entire case, which it plans to show, will last about 120 hours.

State-pathologist, Sophocles Sophocleous was also scheduled to testify yesterday but due to time constraints his testimony is due to be heard on May 30, at 11.30am. 

The Criminal Court’s presiding judge, Haris Poyiadjis set June 3, 4, 6, 10, 17 and 21 as the next court dates.

The two Greek nationals, who pleaded not guilty, have been accused of five counts of murder, one for each victim on the night of June 23 of last year. They are accused of the premeditated murder of Philippos Loucaides, 33, Marios Karaoli, 28, Giorgos Georgiou, 35 and Romanians Georgian Katalin Koman, 25 and Marcel Aourel Koleasa, 33, in a central square of Ayia Napa. Four of the victims were working for local businessman Phanos Kalopsidiotis, who Famagusta police believe was the culprits’ real target.

TOURISM could stimulate Cyprus’ struggling economy, the United Nations’ World Tourism  Organisation (UNWTO) said yesterday during a high-profile visit geared at showing the world that Cyprus was open for business.

 “Travel and tourism can, and is one of the very few sectors that can, form a very bright future for Cyprus," UNWTO Secretary General Taleb Rifai said during a Nicosia-based tourism event. 

But speaking of the here and now, Rifai said that Cyprus was “open,  and welcoming everybody to come here, not just in the summer but all year round”. 

“It is in perfect shape to welcome its visitors,” he said.

With Cyprus’ financial model all but destroyed in the aftermath of a €10 billion bailout agreed in March, industry and government players are keen to upgrade the role of tourism, once the mainstay of the economy. 

Part of the job has been containing negative publicity in light of Cyprus’ unprecedented media attention as Cyprus scrambled to stop all-out banking collapse. Though the dust has settled, the island’s biggest bank is now under restructuring, the second is winding-down and capital restrictions placed to prevent capital flight have numbed holiday bookings. 

 But Rifai said yesterday, the world continued to look at Cyprus as a very attractive and important destination “and will continue to come to Cyprus”. 

 “The benefits of the travel and tourism industry will benefit the Cypriot people, create more jobs and generate more income,” he added.

Rifai  met President Nicos Anastasiades and House President Yiannakis Omirou.

He told Omirou the fact he and his team accepted the Cyprus Tourism Organisation’s (CTO) invitation to come showed their support and solidarity. 

Meanwhile, the German Travel Association’s head, Jurgen Buchy, said the Germans continued booking holidays in Cyprus, keen to explore the island’s historical sites and enjoy the summer. 

Despite paymaster Germany’s perceived negative role in the bailout, the German tourist industry supported all efforts to improve and nurture a “long lasting partnership” with Cyprus, Buchy said. 

CTO director general Marios Hannides said they were being cautiously optimistic as tourism arrivals continued picking up. The presence of the UNWTO head in Cyprus contributed to the message that Cyprus was a solid and healthy tourist destination while the UNWTO delegates were “particularly positive in regard to Cyprus’ image abroad,” Hannides said.

AN ANIMAL welfare group that often works undercover to document animal cruelty in industrial farming has taken footage at a Cyprus abattoir showing goats and sheep slaughtered in what they said were cruel and illegal conditions. 

A member of Compassion in World Farming's Investigation Unit took a video of sheep and goats chained by their rear legs while conscious, hoisted upside down and “bleating piteously”.”It was only at this stage that they were stunned,” the organisation said in a news release. The group said that goats’ horns were cut off immediately after their throats were cut, making it unlikely that the animals were dead and claiming they “would have felt an extreme amount of pain”.  

"This is some of the worst European slaughter footage I have ever seen… What is so disturbing is that new EU slaughter regulations came into force this year - and they are being largely ignored," said Compassion in World Farming’s chief policy advisor, Peter Stevenson. 

Stevenson said that because some goats were stunned but not immediately killed, they could have regained consciousness by the time they were slaughtered, adding that some animals were not stunned at all. Compassion’s investigator took the footage in the run up to the Christian Orthodox Easter celebrations at a single small slaughterhouse and has not investigated Cyprus’ slaughterhouses in general. But they sent a letter to the agriculture minister on Thursday asking him to address the problems they encountered. They have also said they would report Cyprus to the European Commission if they received no response within a month.  

In the letter Compassion in World Farming said that EU regulations prohibit suspending or hoisting conscious animals as well as continuing to cut off horns, unless staff have verified the animal shows no signs of life. Animals should also be killed within seconds of stunning, the organisation said. 

Allowing for the possibility that animals can be slaughtered without stunning for religious reasons, Compassion in World Farming asked for feedback on whether this was the case. 

Agriculture Minister Nicos Kouyialis and the slaughterhouse that allegedly violated the law could not be reached for comment yesterday. 

A European Commission directive that became compulsory this year states that “animals must be spared any avoidable excitement, pain or suffering” including when they are being slaughtered or killed. “Animals must be stunned before slaughter or killed instantaneously.”

Compassion in World Farming warns that the attached video’s scenes may disturb “sensitive viewers”.

http://www.youtube.com/watch?v=xQFEHQeBdTI&feature=youtu.be

BOTH THE number of crossings, and trade across the Green Line decreased significantly in 2012 compared to the previous year, the European Commission said yesterday.

Movement across the line is governed by the 2004 Green Line regulation, which defines the terms under which provisions of EU law apply to the movement of persons, goods

and services. The application of the rules was extended to the boundary of the British Eastern Sovereign Base Area (ESBA)

The latest EU report, released yesterday, said there had been a visible decrease in both the number of Greek Cypriots and Turkish Cypriots crossing in 2012 compared to previous years. The first crossing opened in 2003. 

According to data from the Republic of Cyprus, 481,732 (previous: 621.406) crossings by Greek Cypriots and 154,778 crossings by Greek Cypriot vehicles (previous: 210,877) were noted from the government-controlled areas to the northern part of Cyprus and 850,362 (previous: 937,789) crossings by Turkish Cypriots and 280,358 crossings by Turkish Cypriot vehicles (previous: 348,225) from the northern part of Cyprus to the government-controlled areas during the reporting period. 

As far as the movement of goods was concerned, in 2012, the value of trade across the Line was three times lower than in 2011. This sharp decrease is due to the fact that the sale of electricity from the northern part of Cyprus to the government controlled areas, which was agreed in July 2011, stopped in March 2012. 

Without taking into account the sale of electricity, the regular Green Line trade decreased significantly and for the fourth time in a row since the coming into force of the GLR in 2004 (by 17 per cent down €4,827,454 in 2011 to €4,040,018) due partly to the economic recession. 

The most traded products were, apart from electricity, plastic products, building materials and stone articles and fresh fish. The overall scale of the trade still remains limited, in part due to the restricted scope of the Regulation itself.

During the reporting period, certain obstacles to trade remained, the Commission said. Turkish Cypriot commercial vehicles, in particular lorries above 7.5 tons and buses, can only move freely across the whole island if licences and certificates are obtained in the government-controlled areas. “The Commission services have had talks with the relevant departments of the Republic of Cyprus to find a viable solution to this issue. However, no progress can be reported at this stage,” the report said.

According to the report smuggling of goods across the Line decreased but remains widespread, the report said.

The Turkish Cypriot Chamber of Commerce said the total value of goods for which accompanying documents were issued in 2012 amounted to €9,584,410 whereas the value of goods actually traded was €8,945,347. 

In 2012, the Green Line trade was three times lower than in 2011.

This substantial decrease was explained by the fact that the sale of electricity from the northern part of Cyprus to the government-controlled areas, which was the result of exceptional circumstances, stopped in March 2012. For the year 2012, the sale of electricity amounted to €4,748,881 (53% of the trade). The sale of electricity, even if lower than in 2011, had an impact on the Green Line trade in 2012.

Without taking into account the sale of electricity, according to the TCCoC, the total value of goods for which accompanying documents were issued amounted to €4,835,528 whereas the value of goods actually traded was €4,196,465. Those figures indicate a significant decrease of regular Green Line trade of 22 per cent compared to 2011. 

THE GOVERNMENT has received the “appropriate assurances” from the UN, freeing President Nicos Anastasiades to enjoy a purely “social” dinner with Turkish Cypriot leader Dervis Eroglu at the end of the month. 

Government spokesman Christos Stylianides said yesterday that the UN has responded to concerns raised by Anastasiades in a letter sent to UN Secretary-General Ban Ki-moon last week. 

In a rather bizarre move by the new government, Anastasiades sent a letter to Ban on May 17 accusing UN Special Adviser Alexander Downer and his team of undermining the president’s credibility and the prospects of resuming peace talks between the two sides by creating political expectations of the planned dinner. 

The letter was leaked to the media on the same day it was sent to UN headquarters. In the letter, Anastasiades threatened to pull out of the UN-hosted dinner between himself and Eroglu next week, unless the UN chief could provide personal assurances that it would be a “social event” only.   

The government accused Downer of attempting to put a very political slant to the dinner which was originally meant to be a first ‘meet-and-greet’ over UN-inspired food between the two community leaders following Anastasiades’ election in February. 

The president has made it clear in numerous public statements that his number one priority now is to manage the economic fallout from the EU/IMF-inspired ‘bail-in’ bailout of the country which has crippled its banking sector, raided citizens’ and businesses’ bank accounts and seen the first ever capital controls imposed in the eurozone. 

He proposed peace talks begin in the autumn, adding that in the meantime, the Turkish government could go some way in tackling Greek Cypriots’ mistrust of Turkey by opening the fenced off part of Famagusta to its lawful inhabitants, in exchange for direct trade between the EU and the occupied north. 

In his letter to Ban, Anastasiades failed to go into detail as to how Downer was attempting to pour political sauce over the bicommunal feast, the date for which has been changed several times.

Eroglu initially wanted to have the meeting at the end of April. This was later changed to May 29. However, when the Greek Cypriot side took greater note of the fact that this date coincided with the fall of Constantinople in1453, the dinner was pushed back to May 30. 

Some commentators argue that Anastasiades is so knee-deep in economic strife, with the existence of the island’s biggest lender, Bank of Cyprus, hanging by a thread that his policy on the Cyprus problem has been one of containment and pandering to the more reactionary forces within Greek Cypriot politics, at least until substantial talks can proceed.  

Stylianides yesterday told reporters that due to Ban’s absence from New York, Cyprus’ permanent representative at the UN met with the director of Ban’s office Susana Malcorra on Thursday, who gave “appropriate assurances” to concerns regarding Downer’s suspected anti-social, pro-political dinner bias. 

Meanwhile, Eroglu was quoted by Turkish Cypriot media accusing the Greek Cypriot leadership of leaking to the media a 77-page document of convergences reached in peace talks between 2008 and 2012, compiled by the UN Good Offices.

Eroglu claimed Downer had given two different versions of the convergence document to both sides on April 30, so that should the document be leaked, he would know which side had leaked it. 

Alexander Downer

THE UNION of central government workers, PASYDY, has said that it does not accept the authority of the Commissioner for Civil Service Reform and has effectively told its members not to take orders from her.

PASYDY chose to issue an announcement questioning Emanuella Moushioutta Lambrianidou’s authority, a day before yesterday’s presentation of public administration reform plans at the finance ministry. 

At yesterday’s workshop, Lambrianidou formally presented a series of sweeping draft measures to modernise public administration.  Cyprus has already committed to timeframes and most of the announced measures are part of the Memorandum of Understanding (MoU) agreed with the island’s international lenders as part of a €10 billion bailout. 

PASYDY chief Glafcos Hadjipetrou – who has vehemently argued against almost all austerity measures over the last couple of years as the country edged ever closer to financial ruin – said Lambrianidou could have no executive powers. He also said that as a civil servant, she should not be holding political positions. “This is the principle of independence,” he told state broadcaster CyBC. 

Lambrianidou herself said yesterday that she did not have executive powers and was working in the “spirit of cooperation” that included everyone, including PASYDY, she said. “This is a collective effort and everyone must participate for its success. And I’m sure we are all concerned about the country’s well-being and future,” Lambrianidou added. 

But the message that PASYDY kept relayed was that the union would not play ball. 

“It is not lawful to present as a higher authority the so-called Commissioner for Civil Service Reform, nor for her to issue written or verbal instructions to any state servants,” PASYDY said. 

PASYDY said the union was not against restructuring and modernising the state sector and was willing to work with the government in the context of legality, “the principles of social dialogue and institutionalised methods and procedures”. However, part of the programme for public administration reform aimed at modernising such institutionalised methods and procedures in order to increase meritocracy, transparency, productivity and efficiency. 

A team of World Bank and British experts have already started preliminary talks to support the reform as independent external reviewers. The first part of the external review is expected by March next year, followed by the second part in September next year with reforms passing into law within two months of their completion. Authorities must implement a new performance-based system in the public sector, linking wages and increases with performance, and using evaluations for the purpose of promotion and staff development. Public bodies and state services may be merged or consolidated as necessary, while all basic aspects of public administration will be reviewed. This includes wages, time off, and administrative expenses. 

‘WE HAVE A HARD TIME INITIATING CHANGE OURSELVES’

The discussion brought forth some thoughtful comments from public servants who did attend and who seemed to have valid concerns above and beyond their personal interests. 

One civil servant said that initiatives should not be pushed by politicians looking for votes, whereas another asked whether it would be better to promote and hire people based on written exams audited by independent bodies. 

A commerce ministry official said that in addition to experience, promotions needed to take people’s education and skills more into account.  

A police officer said decisions were often taken on their behalf and wanted to know how the right people could get the job.

An agriculture department official said that party politics were such an integral part of the civil service, with jobs allocated according to party affiliations. Despite Hadjipetrou’s statement about “the principle of independence” of civil servants, the official’s point resonated with others at the workshop, and was not disputed by anyone. 

The education ministry’s permanent secretary, Olympia Stylianou, said that the civil service had proven itself when paving the way for the country’s 2004 EU accession and later in taking on the presidency of the EU council last year.

“But we have a hard time initiating change ourselves,” she said.

Stylianou cited as an example the fact that authorities had known for years that civil servants’ overtime pay was costly and inefficient but it took the country’s lenders to introduce more flexible working schedules. “Is it possible it never occurred to us?” 

Glafkos Hadjipetrou

STATE tax revenues dropped 10 per cent in the wake of a Eurogroup decision mid-March to impose losses on bank deposits as part of the island’s €10 billion bailout, it emerged yesterday, as international lenders warned of significant risks to Cyprus’ economic outlook.

The inland revenue department (IRD) saw a €59.2 million year-on-year drop in revenues in the first quarter, reversing the upward trend recorded in the first two months of this year.

In January and February, the department said it collected around €332.6 million, up 10 per cent compared with the same period last year.

However, it appeared that a Eurogroup decision to resolve Laiki, the island’s second-biggest bank, and impose losses on uninsured deposits – over €100,000 – in the Bank of Cyprus (BoC), ended the run.

The IRD said it collected some €526.9 million in the first quarter, compared with €586.2 million during the same period last year.

And this while Cyprus, with its banking sector severely crippled, is struggling to meet the conditions set by troika of international lenders – the EU, European Central Bank, and the International Monetary Fund (IMF).

The IMF said it expected the island to return to growth in 2015 although risks to the outlook remained significant.

“On growth prospects, the macroeconomic assumptions in the programme take into account several factors that are expected to affect growth in the short and medium run, including the fiscal adjustment underway, and the recent policy actions in the financial sector,” said IMF spokesman Gerry Rice. “Having dealt with the key problems up front, as is the case under the program, growth is expected to resume in 2015, supported by a favourable international tax regime, a well-educated labour force, strong institutions.” 

Rice however, acknowledged that given the situation in the banking sector, including controls introduced to prevent the flight of capital, “macroeconomic uncertainties, and risks to the outlook remain significant. That's something to which we will be paying great attention to as we move forward.”

The government is eager to get back on track, reiterating yesterday that BoC’s return to normalcy was overdue.

The bank, the island’s biggest, was still in administration awaiting the final rate of the so-called haircut on deposits to recapitalise the stricken lender.

Depositors will receive equity in return.

Deputy government spokesman Victoras Papadopoulos said the BoC should have already been out of administration and the new shareholders should have received their stock.

“It is a matter we are monitoring and discussion with the Central Bank and the troika. There are problems, we recognise them, but they can be overcome,” Papadopoulos said.

AN ACTION plan for a shake-up of the public service is due to be ready in the second half of September, while the World Bank in cooperation with the United Kingdom will prepare a study for the same purpose.

However, central government workers union PASYDY, has said it would not accept the authority of the newly-appointed Commissioner for Civil Service Reform Emmanuela Lambrianides, and has effectively told its members not to take orders from her.

Yesterday at a workshop on reform to which PASYDY and other unions public service unions were invited but failed to show, Finance Minister Haris Georgiades and Lambrianides underlined the need to reform the public service to contribute to tackling the economic crisis.

Georgiades said a better functioning public service would provide faster and better services to the private sector, businesses and the general public.

He stressed that it was essential to establish and implement an effective employee performance appraisal system, transferability, integrate strategic planning, and set criteria to measure the productivity of each section.

“We want a public service that is more flexible, less wasteful, without unnecessary bureaucracy, that will responsibly manage public money and serve the citizens according to their rights and their needs, rather than their political identity” the minister said.

The public service must become the fundamental pillar for the creation of a modern and effective state, Georgiades added.

Commissioner Lambrianides said that “efficiency, streamlining structures and processes, better services, coordinating governmental work and strengthening the central government will contribute to recovering from the crisis”.

Lambrianides said the agreement with international lenders provided for the restructuring of the public sector and more specifically for the reduction of barriers to the mobility of civil servants, the modification of the work schedule and the preparation by an independent external consultant of a study on further possible reforms in the public administration.

The commissioner said that the reforms aim to save money in the short term, whereas the ultimate goal was to achieve the sustainability of the public sector.

She said that the study will be carried out by the World Bank in cooperation with the United Kingdom and that the final reports will include recommendations and timeframes for their implementation and must be delivered in the first and the third quarter of 2014.

Lambrianides said by the second half of September she will prepare an action plan for the reform of the public sector based on the president’s commitment to modernize the state and its institutions.

Finance Minister Haris Georgiades

WHEN the chairman of CyTA Stathis Kittis announced that together with the chairmen of the Electricity Authority and Ports Authority they were considering securing loans from abroad to prevent the privatisation of their organisations, most sensible people thought he was joking. The idea was dismissed as just another example of a populist, pipe-dream that would earn the applause of union bosses and then be forgotten.

However, Kittis seems determined to pursue this foolish idea, announcing earlier this week that three organisations from abroad had shown an interest in providing the €1.4 billion loan the three semi-governmental organisations were after. Although he did not name the potential creditors - two were UK-based and the other US-based - he said that he would meet his fellow chairmen “with the aim of turning this initial idea into action”.

In a nutshell, the SGOs would offer their assets as collateral to raise the €1.4 billion loan which they would then offer to the government so that it would not have to privatise the three SGOs as agreed in the Memorandum of Understanding. The sad thing is Kittis was being totally serious, in promoting this ludicrous idea that makes no business sense whichever way it is viewed.

Did it occur to him that by lumbering each of three SGOs with an additional debt of half a billion euros, he might prevent their privatisation but ensure their bankruptcy. The EAC, for instance, is having difficulty servicing its existing loans - its chairman said its surplus was not enough to cover its debt repayment obligations - and would have no chance of surviving if it took on a non-productive loan of €500 million. How would it repay it? By tripling the already extortionate rates it charges its subscribers? Would the Port Authority, which charges absurdly high rates for handling shipments of goods, also triple its rates?

There is no way any serious finance company would lend this amount of money, for non-investment purposes, for the very simple reason it would never be repaid if it is not used to generate more business. The SGOs would not invest the money but simply hand it over to the government, which will not be able to repay a cent for at least 10 years. 

In other words, the SGOs would borrow €1.4 billion in order to preserve the mismanagement, inefficiency, over-staffing, money-wasting and extortionate pricing that has always marked their operation and was covered by their beleaguered customers. The troika is certain to veto such a stupid idea, even if foreign companies are queuing up in order to lend our SGOs €1.4 billion.

I HAVE a feeling that President Anastasiades is attempting the unachievable - proving a worse leader than Christofias. This fear grows by the day. Every day something happens to remind us that Cyprus, regardless of who is in the presidential palace, remains a political lunatic asylum.

A week ago, Defence Minister Fotis Fotiou gave a demonstration of what I am talking about. In a newspaper interview he said the government was exploring the purchase of two open sea patrol boats “so we would be able, as much as we could, to safeguard our sovereign rights in the exclusive economic zone of Cyprus”.

According to information the government was considering the purchase of two frigates. I do not think Anastasiades and his war-monger minister are unaware of the strength of the country from which they would protect our hydrocarbon deposits. 

Currently, the Turkish navy has 48,600 men, 16 frigates, seven corvettes, 14 submarines, 27 ships with missile launchers and 75 planes. Turkey’s air force consists of 60,000 men, 700 fighter planes and 77 helicopters. In view of all this, is anyone in this country justified in ignoring the possibility that if Turkey decided to prevent the extraction of natural gas by force, she would need no more than 25 minutes to sink our frigates? The flying time for a F16 from Konya to Block 12 is about 17 minutes.

What are we going to do with the frigates? Are the debts we have not enough? Are we now going to borrow more money in order to buy targets for Turkish pilots to aim at?

In my view, one of two things could be happening. One possibility is that the cool breeze of May that is blowing through the cypress and pine trees of the presidential palace has gone straight to the head of our new president and made him forget the Anastasiades of 2004.

Back then he was the prudent and courageous politician who had the guts to take on all half-mad demagogues and vested business interests of the island, who joined forces in the axis of evil that imposed (in a democratic way) partition. He has now joined their camp - the camp of political madness - playing with them the fiery patriotic games that will at some point burn all of us. 

The other possibility is that his government allies DIKO, the party of ‘kickbacks’, has decided to return to its old ways. And as Anastasiades does not seem prepared to stand in DIKO’s way over anything, I can only assume the party decided to indulge in a little cash generation. I cannot think of any other reasons to justify this insane decision.

Interestingly, some time ago, a former member of DIKO was telling me that until 2005 the party still had money in its bank account from the commissions paid for the purchase of Airbus planes by Cyprus Airways in the 1980s.

According to press information, the cost of purchasing the two patrol boats was estimated to be €120 million. I do not know where this figure was found, as, from what I know, the cheapest frigates (the Italian-made Masitrale) cost €120m each. In any case, the commission on even €120m - I estimate it to be 15 per cent - would be €18m and it will be very interesting to know how it would be distributed. It would appear that Anastasiades’ alliance with DIKO’s gang of political opportunists could prove his political grave. 

There is also another question raised. Was the troika asked about this purchase as its loan would be financing the planned party? Will they be able to fool the troika into giving its approval?

THOUSANDS of healthy dogs are being put to sleep as charities struggle to cope with the increasing numbers of abandoned and stray animals being picked up on the streets, according to a number of animal organisations and volunteers.

They say that many of the island’s animal charities are now desperate as pounds are overflowing and more animals than ever are having to be euthanised.

Niki Proctor, 35, is a British expat living in Oroklini. The businesswoman and animal charity volunteer contacted the Sunday Mail with the aim of highlighting a situation which she says is burgeoning ‘out of control’.

“Hundreds of dogs are being abandoned and then from overflowing pounds they are sent on to be euthanised. It’s tragic,” she said.

Proctor said that more needs to be done by the authorities to educate people as well as starting a spaying and neutering plan.

Proctor is a volunteer with Pets2Adopt, an island wide registered animal welfare charity with a website (and now Facebook page) which advertises animals in desperate need of new homes.

Christiana Mandriotou of the charity said the economic crisis is being used as an excuse by some pet owners. “If you have a family, surely there are leftovers for the dog to eat?” she said, adding that abandoned dogs are put into pounds and are often put to sleep after two weeks if they have not been re-homed.

“The shelters and the pounds are full and overflowing. Everyone knows that the Argos shelter, for example, is on its knees. The donations have dried up, they have 500 dogs and they are full up. They have no chance,” said Proctor.

The volunteer was referring to the Argos animal sanctuary in Larnaca, which has launched an urgent Facebook appeal to help them save the shelter.

Volunteers from Pets2Adopt regularly go around the pounds and take pictures of the dogs to try to reunite them with their owners or to find them new homes.

According to Mandriotou, unwanted family pets, hunting dogs and litters of puppies are being left abandoned.

“Last month alone, we found more than 50 puppies abandoned in boxes and refuse bins. We have managed to re-home or reunite more than 150 dogs from the beginning of the year until now,” she said. “It may not seem like a large number in comparison to those being euthanised but at least these dogs have a second chance at life.”

She says another 20,000 dogs are getting poisoned, killed, or abused each year.

She noted that a survey carried out seven years ago by a number of concerned associations; found that 60,000 animals are put to sleep annually in Cyprus.

“This number decreased slightly five years ago, but I believe we have now exceeded this horrifying figure.”

But not all of the animal charities agree that numbers are growing or that more dogs are being put to sleep.

Suzanne Ashmoore of Paphos-based Paphiakos and CCP animal welfare says they have yet to notice a marked increase in the numbers of abandoned animals being brought in, nor are they putting more animals to sleep than usual.

“Obviously because of the current situation, people are doing more to support the human charities, but the donations haven’t dried up altogether,” she said. “We are not seeing an increase in numbers as I don’t believe the crisis has hit us yet. We rescue from 8,000 to 10,000 animals a year, and the numbers are roughly the same so far.”

Ashmoore elaborated on the charity’s euthanasia practice. ”By law we have to keep a dog for 15 days in case a home can be found or an owner changes their mind. After that the animal becomes our ‘property’. We don’t just put an animal to sleep because they have been with us for that time. Every dog has its own story. We have some dogs which have been with us for, 7 to 11 years.”

Mary Anastasi, president of the Voice of the Animals organisation, recently told the House Environment Committee that around 170,000 dogs are abandoned in Cyprus every year.

 “Animal shelters cannot cope with this huge burden, which has unfortunately worsened with the economic crisis,” she said.

Anastasti said her organisation recommends a control, protection and public animal health service to be created in order to improve animal welfare.

Mandriotou said this should include fining owners for walking their dogs without leads as these often end up as lost dogs, prosecuting dog abuse and abandonment cases, and fining owners who fail to micro chip and register their dogs.

www.pets2adopt.com

www.argossanctuary.com

www.cyprusanimalwelfare.org

WHEN Cyprus joined the euro the economy was in good condition. Successive governments had worked hard to create a growth model that could employ our highly educated workforce in offering financial services. Cyprus had developed into a regional financial centre. 

Fiscal finances were in good order. The country had a solid banking system. Funding was stable and deposits exceeded loans. Despite a real estate overheating, similar to the UK, Ireland and Spain, risks were contained by tight loan-to-value ratios. 

Cyprus had already in place liquidity regulations and macro-prudential measures whose significance has only recently been recognised by the international central banking community.

Cyprus and its banking system enjoyed international respect.

Five years later, the economy is in shambles. For two whole years, Cyprus has had a government with no access to markets. Euro deposits in Cyprus are unequal to euro deposits elsewhere. How could this happen?   

Could anyone have seen this coming? A look at the credit default swaps for the five euro area member states that have requested support so far offers an explanation. This figure confirms that Cyprus has been in a crisis. But this figure obscures a crucial element that made Cyprus unique.

This uniqueness is shown by the date when the eurogroup received a request for help by the Cyprus government in relation to its exclusion from the markets. Greece, for example, sought assistance on April 23, 2010 and its Memorandum of Understanding was finalised on May 2, 2010. In all cases, except Cyprus, when a government run into difficulties, with the CDS spreads reaching or exceeding about 600 basis points, it asked for help. And in each case within three weeks or so, a programme (MoU) was agreed, and the government started its implementation. 

The Cypriot government run into problems in May 2011, two years ago. But unlike everyone else, the Cypriot government refused to follow the rules. More than a full year passed before the Cypriot government was forced to ask for help, on the same day in fact that Spain asked for assistance.  

But Cyprus was also unique in that the government refused to finalise an MoU. In contrast, Spain completed its agreement on July 20, 2012, three weeks after it had asked for help. 

The inaction by the government had severe economic consequences, with unemployment reaching historic highs. 

This was the first time in the history of the republic that unemployment had reached double-digit levels during peace time. Worse still, by February 2013, one out of every three young adults was unemployed. The government had set in motion all the ingredients needed for creating a lost generation.

What happened? What made Cyprus so unique? In February 2008, just two months after Cyprus joined the euro area, there were presidential elections and the public voted in the leader of the communist party.

The public did not foresee the catastrophe this could bring. At that time, the economy was doing so well that voters focused on the political problem of the island.

The government started overspending as soon as it took power. In an environment of stagnating growth it created doubts about the sustainability of its fiscal affairs. When financial markets raised red flags, the government had a choice: Fix the problem, regain credibility, restore sustainability; or make the problem worse.

Faced with this choice, the government assaulted the banking sector that was already weakened by the global crisis. By the time the five-year term of this government had ended, it had also succeeded in destroying the economic model of the country.

The spending spree started the imbalance. Growth averaged around 4 per cent before the crisis. Starting in 2007, there was a 4 per cent growth path, but over the next five years the graph line showing growth of real GDP remained about flat.

By contrast, real government expenditures accelerated after 2007. This only stopped when the government run out of money and could no longer keep up. Couldn't someone explain to the government why this was a problem? There were many attempts. Concerns were raised as early as 2009. 

However, the government refused to either acknowledge or correct the evident imbalances. The argument was used that debt to GDP was below the average of the euro area so there was plenty of room for more spending and bigger deficits.

Concerns intensified during 2010 with the further deterioration of fiscal finances in the context of the sovereign crisis in the euro area that year. The large size of the banking system and its connectedness to Greece implied greater vulnerability to fiscal missteps.

A letter from the Central Bank to the government, dated 18 May 2010, warned "... that unless there is a change in direction with meaningful fiscal consolidation, primarily on the expenditure side, the consequences for the Cypriot economy will be catastrophic".

Before the end of the year, on December 15, 2010, the presidential palace would receive another warning, this time from the European Central Bank. The letter, co-signed by the then ECB President Jean-Claude Trichet and the governor of the Cyprus Central Bank was emphatic.  

Among other things, it warned, that in light of the large size of the Cypriot banking system, the country could experience negative feedback loops between the financial sector and public debt that could be disastrous for the country. The letter stressed that the challenges faced by the Cypriot economy required prompt corrective action. 

Unfortunately for the Cypriot public, the government dismissed all these warnings. Not heeding the ECB warnings was particularly costly. Through its actions, the ECB had demonstrated its willingness to provide support and diffuse stress situations. It had been purchasing Greek, Irish and Portuguese bonds. A few months later, it started purchasing Italian and Spanish debt.   

Cyprus had a government that chose to dismiss all warnings. Unsurprisingly, the ECB made no purchases of Cypriot bonds.  

The failure of the government to correct its widening fiscal problems and the deterioration in Greece attracted attention to Cyprus in 2011.

The sovereign was downgraded. But instead of taking consolidation measures the government imposed a levy on banks to raise more revenue and continue spending.  

This was the opening salvo in what was to follow. The global banking crisis was already pressuring banks. Banks were raising additional capital to defend against rising risks. And the government chose to add to these pressures.

By May, the situation had deteriorated but the ministry of finance denied it. There was a reason for the denials. The ministry of finance was trying to avoid disclosing the deterioration of the country's finances prior to the parliamentary elections in late May 2011.  

For many months, the ministry had been postponing needed long-term bond issuance. The maturity of the debt was significantly and dangerously shifted from long-term financing to short-term financing to facilitate the election plan. 

It was later disclosed that the ministry of finance had even asked a rating agency to postpone downgrading the sovereign until after the election.  

The government's plan was successful. The communist party gained one seat on the 22 May 2011 parliamentary elections. However, the country was to pay a huge cost. The government had lost control of its financing.

Anyone with access to market data could see the tsunami coming. The central bank had been providing information to stakeholders. Markets had treated Cyprus similarly to Italy and Spain until the end of 2010. The government's refusal to take action with the budget for 2011, put Cyprus in a worse condition. Portugal was the only country giving cover to Cyprus.  

By the beginning of 2011, it was clear that if Portugal was forced to seek help, Cyprus could be next. The loss of market access was immediately evident. By mid-June, yields were as high as the levels for Greece, Ireland and Portugal when they were contacting the EU and IMF to ask for financial assistance.

A chart showing these high yields was attached to yet another warning letter sent by the central bank to the president on June 17. 

The summer of 2011 presented an explosive mix for Cyprus. The government had lost access to markets in May. There was a very unfortunate Iran-Syrian arms related incident in early July. And the euro area crisis intensified. The Mari explosion on July 11, 2011 was very damaging. 

The event paralysed the government and resulted in political instability. The explosion also had a tremendous economic cost. Over half of the island's electricity supply was lost. The island had to endure rolling power outages. The economy was thrown into a death spiral.

In yet another warning, the central bank noted that following the explosion, and in light of having already lost market access, the economy was in a critical condition comparable to that in 1974. Action was imperative to avoid the worst. 

Once again, action was not forthcoming. Instead advisers, including academics based abroad were drafted in to criticise those calling for action and argue that what was needed was more spending.

The country was falling apart. But what about its banking system? Certainly, the banking system of any country driven to the ground by its government sooner or later faces severe difficulties and a crisis. But what was the state of the Cypriot banking System in July 2011?

The answer can be obtained by looking at the results of an European Banking Authority stress test that by coincidence was published that month, on July 15. 

The two largest Cypriot banks participated and both passed. The system was under pressure, but banks had been raising capital to defend against risks and could weather even possible haircuts to Greek debt that were then under discussion.

On July 21, the EU Council decided to implement a private sector involvement (PSI) on Greek debt. The decision, following negotiations with bank groups, called for a voluntary haircut of up to 21 per cent. The two large Cypriot banks, with major operations in Greece, held a lot of Greek debt, as all banks operating in Greece were expected to. This was a painful loss to shareholders. However, the banks had accumulated more than enough capital and they weathered this decision with existing buffers.

Unfortunately, on October 26, the EU Council decided to abandon the 21 July 2011 agreement. The governments backtracked on their decision and forced a bigger haircut that eventually translated into about 80 per cent in market value. 

At the same time, they demanded a new recapitalisation exercise with elevated core-tier 1 capital requirements (nine per cent) without an agreement on how capital would be provided. This was a huge blow to the banking system in Europe. ECB President Mario Draghi later characterised this sequence of decisions as a "Lehman'' event for Europe.

The October 26, 2011 decision cost about 25 per cent of Cypriot GDP to Cypriot banks. Remarkably, the government agreed to this decision while the exposure of Cypriot banks and associated cost to them were public information.  

The two banks had extra capital to cover about 15 per cent of GDP. The largest bank could complete covering all additional required capital once it had completed the sale of some insurance assets. But the second largest bank needed temporary support of about 10 per cent of GDP to reach the 9 core-tier one threshold. However, as the sovereign had lost market access it faced a difficulty. 

With the economy tanking and no access to markets the sovereign faced default. Once again, the government avoided seeking assistance from EU/IMF. Instead, the government sought a bilateral loan from the Russian Federation, of about 15 per cent of Cypriot GDP. Once again, the government chose to delay taking corrective measures and make the problem worse.

The government tried to delay everything beyond the February 2013 elections. It might have worked. If banks could be assured that government debt would remain ECB eligible, then the government could raise the funds through issuance of debt that banks could finance with liquidity provided by the ECB using the bonds as collateral. 

But there was a catch. ECB eligibility requires at least one investment-grade rating of sovereign paper. The Cyprus government had suffered such a loss of credibility that it could no longer safeguard its rating. But this rule had been waived for programme countries. Could Cyprus secure similar support?

A last chance presented itself in April 2012. A new minister of finance had assumed office in March. He suggested that the government adopt and implement voluntarily measures similar to what a MoU would have demanded and in this manner avoid a formal support mechanism.  

At a meeting with the executive board of the ECB on 17 April, he committed to adopt and implement specific measures before the end of May. Unfortunately, his plan was deemed too politically costly for the communist party and resoundingly rejected. The president's public dismissal on June 1, 2012 pushed Cyprus over the cliff. Shortly after, government bonds no longer met the ECB eligibility criteria. 

The ECB did not waive the rules for Cyprus. Cyprus became the first country in history whose central bank refused to accept its bonds for monetary policy purposes for many months. Unfortunately, although the government asked for help on June 25, 2012, it chose not to complete the MoU.  

The government desperately tried to push adjustments beyond the February 2013 elections. Simultaneously, it intensified its assault on the banking system as a platform for the election.

After the communist party effectively secured the control of the central bank, on May 3, 2012, the government and central bank could engage in a coordinated campaign against the banks as part of the February 2013 presidential election campaign. 

The central bank contributed in a number of ways. It removed the chairmen and CEOs from the two largest banks. It started a number of investigations against the banks, with selective defamatory leaks to press. More damaging for the international image of the sector, the central bank characterised banking in Cyprus as ``casino banking''. And, as was reported widely, it took steps to exaggerate the capital needs of the banking system.  

The goal was to create a negative image that could be used to claim that the only reason the government had to seek EU/IMF assistance was problems with the banks. 

The coordinated campaign succeeded in creating the image that the banking system was so severely undercapitalised that if the government provided the capital, as was done in previous cases, then, according to standard IMF analysis, government debt could be deemed unsustainable.  

The bail-in of depositors became the only option the Eurogroup was willing to discuss.

The economic consequences of these five years were severe. By 2012, real GDP per person fell cumulatively by more than 10 per cent relative to 2007. Worse, as a consequence of the damage to the economic model of the island, the decline was projected to continue.

In five short years, Cyprus had become a case study on how destructive economic populism can be. I recall a lesson I learned long ago from the famous economist Rudi Dornbusch while studying about other crises that could have been avoided. As Rudi used to say: "Populism always ends in tears".

Athanasios Orphanides was governor of the Central Bank, May 2007 - May 2012. This article is taken from a presentation he gave on May 17 at the conference ‘Cyprus: five years in the Eurozone’, organised by the Tassos Papadopoulos Studies Centre