Ex-finance minister Kikis Kazamias said yesterday he was not aware whether former President Demetris Christofias either sought or received guidance before sanctioning a 2011 euro-area decision to write down Greek debt – a pivotal moment now widely acknowledged as having broken the back of Cyprus’ two largest banks.
Kazamias said that during his stint no governmental meeting was held in 2011 or subsequently to discuss specifically the impact on the economy from the Greek PSI (Private Sector Involvement), also known as the Greek ‘haircut’.
Testifying before the committee of inquiry that is looking into Cyprus’ near financial collapse, Kazamias said that to the best of his knowledge “no special meeting took place to discuss this topic exclusively.”
He was responding to a question as to whether following the Greek haircut he informed the then president that the decision entailed disastrous consequences for the Cypriot economy.
Kazamias was equally unaware if Christofias, having decided to rubberstamp the Greek haircut, had asked his eurozone counterparts for trade-offs to mitigate the impact on Cypriot banks, heavily exposed to Greek government bonds and private debt.
The former economy chief went on to say that, in his view, it would have been next to impossible for Cyprus to negotiate the Greek haircut, given the urgency of the matter at the time.
“Any delay in taking a decision might have led Greece to a disorderly default…the President had no choice,” said Kazamias.
Under the circumstances, the decision to go along with the Greek debt write-down was the correct one; the alternative was far worse, as it would have meant the collapse of the Greek economy, leading the Cypriot banks to total bankruptcy.
“It was a case of the lesser of two evils,” he noted.
Kazamias was quizzed on comments made by European Commissioner for Economic and Monetary Affairs Olli Rehn, who on Wednesday censured Cyprus for taking too long to ask for financial assistance.
But Kazamias sought to discredit Rehn: “Anyone can say whatever they want after the fact,” he remarked.
Sticking to his guns, Kazamias reiterated that after speaking at length with Rehn in November 2011, the European Commission was satisfied with the fiscal steps Cyprus had taken and shortly thereafter it removed the island from a list of five countries under probation.
On January 13, 2012, ratings agency Standard and Poor’s slashed Cyprus’ sovereign ratings to ‘junk’; Kazamias repeated yesterday that the reason for the downgrade were the banks, not government finances.
Kazamias served as finance minister from August 2011 to March 2012, when he resigned citing health reasons. His term coincided with the summer 2011 decision for the Greek PSI or ‘haircut’. The first PSI agreed in July 2011 called for a 21 per cent reduction in the the Net Present Value of the Greek bonds. The PSI was finalised in February 2012, when euro-area finance ministers finalised a second bailout package for Greece, which had the effect of raising the level of the ‘haircut’ from the initial 21 per cent to around 70 per cent.
It’s estimated that the Greek PSI’s hit on Laiki and Bank of Cyprus was in the order of a little over €4bn.
Former Finance Minister Kikis Kazamias prepares to be quizzed on the economy yesterday (Christos Theodorides)