CENTRAL BANK (CB) Governor Panicos Demetriades yesterday said that Cyprus’ debt was manageable and that the bulk of assistance from international lenders would go into recapitalising the island’s banks.
“However big the amount demanded for the banks’ recapitalisation, the country’s debt is manageable for the simple reason that the new loan we will get from our partners in Europe and the Support Mechanism and the International Monetary Fund (IMF) will be mainly for the banks’ recapitalisation,” said Demetriades.
He was speaking after he met with President Demetris Christofias to discuss the current state of the banking system, ahead of the lenders’ (the troika) return to the island.
It was reported on Friday that the troika - European Central Bank, European Commission and IMF - would be arriving on the island on Monday though the government spokesman Stefanos Stefanou yesterday would not confirm the date yesterday.
Demetriades called for an end to public debates on whether the state debt was viable, describing the loan from the troika as “an investment we are making as a country; as taxpaying citizens, from which we should logically get something in return too”.
But even if the returns are negative, he added, the public debt would become manageable again once the banks were privatised.
Demetriades confirmed that Cyprus was seeking direct recapitalisation, through the new European Stability Mechanism (ESM) that was unveiled last week. The ESM, a €500 billion rescue mechanism for the 17 eurozone countries, will be used to lend to distressed eurozone sovereigns in return for strict fiscal and structural reforms, aimed at putting economies that have lost investor trust back on track.
Asked yesterday how much Cypriot banks needed, Demetriades said he could not comment on something that was under discussion at the European Central Bank’s governing council.
He pointed out that while recapitalisation was necessary, this did not automatically mean that the banking system would automatically start picking up.
But he added, “Once this procedure begins, we will enter the final leg of the journey, where we will start seeing light at the end of the tunnel”.
Demetriades said the banks needed to recover, through reforming the banking system, ring fencing Cypriot banks’ operations in Greece - “we definitely need to reduce the risk that comes from there” - and improving supervision over the island’s banks.
Demetriades said he exchanged views with Christofias in their meeting, on the state of the banking system as well as troika’s imminent return to Cyprus.
He referred to the CB’s decision to appoint an independent foreign agency to investigate what went wrong with Cyprus’s banks and led them to seek support from the state. He said the results of the investigation could be tabled at the House, if this was requested.
“We believe this investigation will help apportion the blame on those who led our banking system to this difficult situation,” said Demetriades. “The situation may be difficult, but the CB is working towards exiting this crisis as soon as possible. We do not view the troika as our enemy, but our ally, who will help solve the problems faced by the Cypriot economy today.”
In the afternoon, Demetriades relayed the CB positions on the banking system to the party leaders and presidential candidates.
Meanwhile, referring to a proposal for all co-ops to fall under the umbrella of the Central Bank, Demetriades said the matter was very delicate. “I am convinced we will conclude on a formula that will ensure the cooperative movement’s autonomy and independence, while at the same time improving supervision and essentially the cooperative movement’s credibility,” said the governor.