THE RESPONSE by the Eurogroup and the ECB to President Anastasiades’ letter asking for some changes to the Memorandum of Understanding was an unequivocal ‘no’. Finance ministers on their way into Thursday’s Eurogroup meeting in Luxembourg were united in the view that the MoU signed on March 25 was “the best solution for Cyprus in the circumstances” and that “there is no viable alternative than implementing the strategy outlined in the memorandum”.
These comments were preceded, a day earlier, by reports in the European press quoting spokesmen and officials of European governments insisting there was “no chance we would revise the terms of the bailout.” Like the ministers, officials felt that the priority was on “implementing the programme consistently and without further delay.” The only concession, made by one official quoted by Reuters was that “potentially” there could be adjustments in the medium term, as was the case with Greece.
This unanimous position plus very critical comments in the German press forced government spokesman Christos Stylianides to go on the defensive, insisting that no changes to the bailout deal were being sought. “What we seek is to resolve practical problems, but always within the framework of the programme,” he said, defending Anastasiades’ letter which expressed genuine concerns about the survival of the banking system. The president felt that the MoU terms imposed on the Bank of Cyprus, which was of systemic importance to the economy, made necessary the capital controls that were stifling business activity.
He certainly had a point. It is all very well for ECB executive board member Joerg Asmussen to urge Cyprus to make every effort to restore confidence in its financial system but he should also suggest how this could be done after the Eurogroup forced the BoC to merge with Laiki, sell its operations and assets in Greece for peanuts and lumbered it with Laiki’s €9b debt to the ECB, which has refused to offer support to the bank. How could confidence be restored in the financial system when the biggest bank has been made completely dysfunctional by the terms of the bailout?
Finding a formula to rid the BoC of Laiki’s debt is the only way of restoring some confidence and eventually returning to normalcy but the sending of the letter by the president was not a good idea especially as it was made public. Inevitably, it was interpreted by EU politicians, officials and commentators as an attempt by Cyprus to change the terms of the MoU, less than three months after it was signed. The Europeans felt obliged to take a hard line and insist that their only concern was the implementation of the programme. The MoU was not a game which Cyprus could change the rules of.
It has not helped that the political establishment has been openly discussing ways of avoiding implementing terms of the memorandum, parties insisting that SGOs should not be privatised. Even Anastasiades’ announcement of tax breaks for businesses to a gathering of accountants was not such a clever idea. He said this aimed at reviving the economy but in Brussels it could be seen as another sneaky attempt to get round the MoU by giving back to companies what they lost through the increase of the corporate tax. This was probably not the objective but nobody in Europe would give us the benefit of the doubt.
This was why every European finance minister and official that spoke to journalists on Thursday underlined the need for the MoU to be implemented. And our government would do well to take heed. It must avoid the feet dragging of the previous government and implement the programme with a sense of urgency and commitment. Once it has shown that it is honouring its signature, the finance minister could again raise the issue of the Bank of Cyprus with his colleagues of the Eurogroup, but behind closed doors. As we have seen, it is a mistake to discuss such matters publicly because everyone digs in his heels less he is accused of showing signs of weakness.
The government needs to learn from its mistakes and adopt a more measured approach in its dealings with the EU if it wants to achieve certain things. And it should bear in mind that the previous two Cyprus governments were not considered trustworthy by the Commission. If we are to regain our partners’ trust so we could secure their support and help, we need to play the game by their rules.