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Cyprus: Six reasons for staying within the euro and one question about whether it can

Posted by (Author) on May 17th, 2013 - 18 Comments
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As in many arguments about a political and/or economic situation, in the argument about whether Cyprus should be in or out of the Euro, there is a tendency for the confusing and invalid conflation of a number of issues.

One issue is the cause of the crisis. The communist party, AKEL, which bears much responsibility for Cyprus reaching this state, tends towards arguments deceptively implying that the current condition of Cyprus is due to the EuroGroup and the Troika. However, Cyprus has 14% unemployment, while still having experienced only a minor impact from Troika measures.

Herman van Rompuy referred to “years of mismanagement”, which every Cypriot knows is true. The main attribution of responsibility to the euro is that being in the euro area contributed to the attractiveness of Cyprus to foreign (including Russian) depositors. However the economic problems were the result of the world economic crisis combined with three other factors: The first was that, based on the foreign deposits, Cyprus bankers followed an expansionary policy of loans and investments, and (second factor), a profiteering attitude which verged on gambling. When the crisis came, the banks faced severe liquidity problems and the second largest bank of the island became insolvent. Policymakers and the regulating institutions, the Ministry of Finance, or the Central Bank of Cyprus, fell short in their job.

The second issue is the treatment of Cyprus by the Troika and the Euro Group, just two weeks after Nicos Anastasiades became president, after the end of the term of our previous, communist president, Demetris Christophias. The new president  had committed himself  to  immediately negotiating, agreeing and signing  a Memorandum of Understanding  on the bailout.

The treatment he received from the Troika and the Euro Group has caused shock all over the world. Other Mediterranean and small members of the EU should be warned. After showing patience with anti-EU Christophias for months, they exposed Anastasiades to pressure and deadlines, threatening to suddenly cut off Emergency Liquidity Assistance funds to the banks, assistance which had been provided for over a year to one bank that many local analysts considered insolvent, by-passing ECB policies.

The reasons given both by the Euro Group president and the sole large power active in the EU now, Germany, for the harsh treatment of Cyprus are deceptive or straight-forwardly wrong. They are deceptive because they never mention that, though with many weaknesses, the Cyprus economic model, which is based on services, and not heavy industry, functioned and was not in danger of collapse, until the EuroGroup decided the PSI to the Greek public debt, which landed the Cyprus banks with a 4.5 billion euro loss, equivalent to 25% of the country’s GDP. We are not aware of any other country suffering similar losses, since Finland was hit by similar proportionate loss of GDP with the collapse of the Soviet Union.

It was negligent for both the Cyprus Government and the  European Council that Christophias was allowed to  agree to the PSI without being clearly warned on the consequences for Cyprus, and without any measures being taken for the security of a small Euro Group member state. These two factors alone should have induced extra understanding on the part of the EuroGroup for their, at least moral, obligation to support the recovery in Cyprus.

Additionally, the measures insisted on contain injustice for innocent people. Of course the two large banks have the main responsibility. But who are the human bearers of this responsibility? It is clear that those responsible are the shareholders who elected the boards, the boards who appointed the directors and other officials, the officials who made the decisions, and finally those who bought the bonds of these banks. What is the responsibility of depositors in these banks, who are the least sophisticated parties involved and who had been informed that these very same banks had passed the EU “stress” tests, conducted by financial regulators?

In the last few days, it has also been revealed that Cyprus has suffered a further 5.5 billion loss through the emergency financing (ELA) of branches of Cyprus banks in Greece, not directly, but through their Cyprus headquarters. In a remarkable act of injustice, adding insult to injury, the Greek Branches have been taken over by a large Greek bank at fire sale prices but the ELA debt has, with the EuroGroup decisions, remained in Cyprus. It is transferred to the second, surviving Cyprus bank, creating a further total indebtedness of 11 billion euros.

Finally, the  justification proposed for this collective punishment are the so called black Russian deposits reported by the German secret service to exist in Cyprus. Not a single case has been named, and not a single figure. If the proof is the existence of  wealthy Russian depositors, how does this differentiate Cyprus from the other EU countries? In any event Cyprus has accepted inspection by relevant international bodies, which implies acceptance of any measures for improvement which they propose.

Furthermore, the theoretical “victim” of the Russian tax structuring through Cyprus, is not Germany, but the Russian Treasury; yet Russia renewed the double-taxation treaty that is the basis for these fund flows just months ago and has been critical of the bailout approach.   Clearly, Russia finds that the advantages of having a EU jurisdiction with English law as a channel to funnel investment into Russia outweigh the lost tax revenue.  The EU should be applauding Cyprus for using its competitive advantages (skilled workforce, rule of law, etc) to draw tax revenue into the EU, not demonizing it and aiming to destroy decades of work in building the high skill infrastructure needed to support this industry.

Finally the EuroGroup has no legal basis to call for a shrinking of the banking sector in Cyprus, any more than Cyprus has one for calling for a shrinking of the motor and arms sectors in Germany. Nor is there any basis for calling for an increase in corporate taxation in Cyprus, any more than there is for calling for a reduction in Germany.

All this is good reason for reflection on the part of EU members, and particularly of the EuroGroup members. But are these reasons for Cyprus to leave the Euro? The crucial issue is that this decision should not be taken on the basis of whether injustice was done to Cyprus by the EuroGroup (which injustice is also balanced by a 10 billion euro loan on favourable terms at a time when the markets will only lend to Cyprus at impossible terms), but strictly, and this is the third broad issue, on the basis of whether staying or leaving is in the interests of Cyprus. There are at least six reasons why leaving the euro is not in the interests of Cyprus:

  1. Economists who advocate leaving the euro do so in order to minimize the cost, in terms of deflation, depression, and human suffering, which will come from the Troika/Euro group measures. But no one has quantified this cost.
  2. Nor have any of the economists who argue for leaving the euro quantified the cost of returning to the Cyprus pound, and so the relative cost of the two have not been clearly, or even approximately compared. Clearly, in the case of leaving the euro there will be enormous devaluation. This will  dissipate savings across the economy and not only for the 45% of deposits which are in the two largest banks,  will make repayment of external financial obligations impossible, and will also make imports almost impossible in a country that imports almost everything it consumes other than tomatoes and oranges. (Even lemons are imported from Argentina for part of the year).
  3. Only Paul Krugman has hinted at the consequences of leaving the euro, while advocating it, saying that Cyprus will develop its economy through cheap mass tourism and agriculture. Surely ProfessorKrugman did not mean to suggest that Cypriots (70% of current school leavers with tertiary education), will return to being waiters and farmers.   Moreover, agriculture’s growth is limited by the arid climate and tourism is already at capacity levels for at least 2 of the 4 months of the tourist season.  It is hard to imagine either area contributing more than 2-3% of additional GDP growth, however much Cyprus devalued.
  4. No one has ever left the euro area and the terms are unknown. In the case of Cyprus and the current internal balances in the EU, the terms could turn out to be harsh. The 10 billion Stability Fund loan has still not been given, and in case of leaving the Eurozone will merely need to be sought elsewhere (!). But the eleven billion Emergency Liquidity Assistance loan has already been taken. What would be the terms of repayment? Would Cyprus default on the loan? In that case, would Cyprus remain in the Union, and on what terms?
  5. If Cyprus, in the best case, becomes a black sheep of the EU, and in the worst case is forced to leave, would Cyprus be in a better geostrategic situation than it is now, with the US as well as the EU supporting its sovereign right to the natural resources in its exclusive economic zone?
  6. Will, in case of exit, Cyprus be in a position to rebuild its economy through the three or four avenues which offer themselves?

(a)  Tourism will probably continue developing in either case.

(b)  Rebuilding trust in its financial services will be much easier within the euro, than with a devaluing currency, and being a defaulting debtor.

(c)  Its energy deposits will strengthen its economic and political position in the EU, but only if they can be securely exploited. More likely within than without.

(d)  The use of the energy deposits are also necessary for the re-establishment of its credibility as a financial centre and economic growth in general. The stability and solidarity fund, already legislated for, must immediately come into effect, will receive its main credibility from future energy receipts, and will be crucial for maintaining social peace, restoring growth, and returning every last euro of all depositors who have been unjustifiably, if necessarily taxed, is also a necessary measure for restoring confidence in Cyprus as a financial centre .

Unfortunately, Cyprus and the EU also have one terrible question before them:

Will Cyprus be forced out of the Euro Area?  The 11 billion ELA Loan which, to our horror was revealed a few days ago, and which will end up being a debt of the biggest bank, the Bank of Cyprus, even though 9 billion euros of the loan was made by the second biggest  (failed) bank, Laiki Bank, may end up completely choking the market, thus, through total paralysis, pushing Cyprus to either default or print some kind of money, either action possibly forcing it out of the Euro area.

This is a possibility unless the EuroGroup and the ECB find a way to absorb this amount and save Cyprus from total economic suffocation. It is economically and politically correct that they should do so because this sum is almost exactly equivalent to the sum of losses that Cyprus is not responsible for: The 4.5 billion which Cyprus lost with the European Council decision for the Greek debt PSI, plus the 5.5 billion of European Liquidity Assistance which went to the Greek branches of the two ailing Cyprus Banks.

Michalis Attalides

Antonis Polemitis

Stavros Zenios

 

Categories → Οικονομία

18 Comments
  1. avatar
    K on May 17, 2013 - (permalink)

    You still have the illusion of EUROPE helping us or even caring what would happen to us.

    I dont think so

    Staying or leaving the euro should have same underlying assumption that we are alone anyway.

    At least at the momemnt EUROPE AND GERMANY (because euro is germany at this time) have not shown anything.

    The money laundry report of TROIKA was trying to exagerate a money laundry issue which from my understanding the issues are not so diifferent than other EU countries.

    “This is a possibility unless the Euro Group and the ECB find a way to absorb this amount and save Cyprus from total economic suffocation”

    They will let us suffocate it is to their benefit. KEEP DREAMING PROFESSORS

  2. avatar
    pireefs on May 17, 2013 - (permalink)

    The adverse effects of issuing our own currency should be compared to the total costs we will incur during the years to come in which our country will implement the memorandum and its harsh austerity measures and any other measures which will be imposed if we do not reach the predefined targets.
    I am sure you all three agree that we will not achieve the predefined targets set for 2013 at least, since the bail-in solution will cause higher rates of recession for 2013-14. Therefore, targets will not be achieved since government revenue from direct and indirect taxes will fall short. In addition, the government will also have to pay more in unemployment benefits and for redundancies through the redundancy fund. All these mean that the probability to achieve the targets is less than slim. Hence, new measures will be required. Therefore, in my opinion, the comparison should be made after adding all the negative effects created by the austerity measures against the negatives you described in your article if we introduce our own currency.
    Neither you, nor the supporters of the lira, or the government or the Central Bank, have produced a detailed scientific analysis of the pros and cons with numbers so that the average citizen can conclude the best solution for our country. We only hear numbers with no scientific backing. Academicians, above all, should create analysis and scenarios for the most probable events and then produce a recommendation based on their findings and not based on what they believe or what their political affiliations suggest. Above all, academicians, ought to the society to be objective, present the arguments of both side, perform the necessary analyses and reach concrete recommendation. The need for such analyses, and especially justifications for supporting our staying in the eurozone in contrast to issuing our own currency, will become much more important in the years to come, as citizens and employees will be asked to accept heavier salary cuts and taxes to achieve the targets set in the memorandum. Otherwise, in 2016, more people will ask for our own currency rather than those talking about it today.

  3. avatar
    ... on May 17, 2013 - (permalink)

    It is unbelievable that people of your caliber insist on making arguments about the PSI.

    Let me try to understand what you are saying: bankers bet on a 7%-yield bond, and when they lost, Europeans should pick up the bill.

    And that if Christofias had simply asked for help because of the PSI, the Europeans would have gladly footed the bill.

    Are you serious?

  4. avatar
    Σταύρος Ζένιος on May 18, 2013 - (permalink)

    Dear ..

    yes, we are serious. Look at the data of the impact on various countries of the Greek PSI. Greek banks, with only 11% of GDP loss were offered direct assistance. Why not the CY banks with 25% hit? This does not mean of course that shareholders would not be wiped out and bank bold holders too. But not the depositors!

    CY 23.03% GDP
    GR 11.65
    DE 0.13
    BE 0.56
    FR 0.25

    The numbers above show what is fair, it was doe for GR and the President had vet power over any decision. Now a veto is NOT something you use – it is part of the equation of power when pushing for REASONABLE demands.

  5. avatar
    Trianon on May 18, 2013 - (permalink)

    Gentlemen lets not play the blame game on state of economy. Does any one disagree that our dire problems are a result of successive governments pathetic mismanagement and serious policy failures.

    Structural reform has been a rarity of political life whilst we rode the wave of euphoria believing that the bubble will never burst. It almost burst on a number of occasions but thanks to the misery of our closest neighbours we would soon be on the “recovery” path.

    Turning to your conclusions, it seems that we have an even chance of being kicked out of the Euro. Your reasons for supporting Cyprus staying in the Euro sound creditable enough. Lets have some scientific research to examine both sides of the argument and possibly an attempt to quantify the costs and benefits.

    Only then we may be able to at least draw some decent conclusions. Otherwise each side will be trading blows with no constructive benefit.

  6. avatar
    kax on May 18, 2013 - (permalink)

    While I agree with most of the arguments there are some points I would like to make in order to express a diferent opinion about the ELA.

    1.Most shareholders in the two Cypriot banks had absolutely no say in the election of board members and are as “innocent”as the depositors.In fact the Bank of Cyprus was always run by a small group of people with enormous power ,more than politicians.I can say for a fact that the Chairman and CEO refused to even answer written complaints of shareholders.How can these shareholders have any responsibility for decisions made by self serving executives?

    2.The Central Bank announced after the publication of this article that in March BOC received 2 billion in ELA,presumably to replace fleeing Russian deposits.The Cyprus delegation was faced by demands to close down both banks and following hard negotiations it managed to save one of them.As a result of all the negotiation that took place the final solution is not an easy one to implement.

    3.The losses in Greece arose from bad debts given to ship owners,monasteries and for share support schemes.The losses preexisted the sale of the Greek branches and the offer accepted was the best available one.It is really surprising that the multimillionaire former board members of the two banks did not make a better offer.It would take just over 500 million to buy them yet they chose not to participate in the tender.Since all these years they have amassed billions I can only assume that they know the banks were worth even less than the actual price paid.

    4.While I agree 100%with the arguments made by Professor Zenios that the solution was not fair and our allies should have helped more I have to say that nothing in life is fair.In 2004 Cyprus entered the EU sacrificing all its primary and secondary sectors in favour of the business model it chose.The same one that the Europeans tell us is now dead.Was it fair to kill all these companies in one day?

    I feel that instead of trying to find a way to keep the business model our European allies say is dead we should look forward.The ELA is not the real problem of the Bank of Cyprus as long as the ECB does not stop it.If all controls in effect are removed as demanded by politicians then the ECB will have to give a lot of extra financing either as ELA or in another way.Since the Bank has a new board and a CEO is to be appointed soon politicians should step aside and let the Board take all actions at the appropriate time.By pressing the Bank to hurry out of the intensive care unit before it is ready the outcome will be negative.Well meaning or popularity seeking politicians cannot help,only the Board must make all the decisions without external pressure.Having said that in my opinion the first thing they should do is to take legal action against former Board members and executives.We read that in Spain a former Bank Chairman is in prison for overpaying to buy a bank in Florida.Our bankers didnot buy banks in Florida but among their many deeds bought banks in other countries.Nothing will increase the confidence in Cyprus banks more than the spectacle of former executives in handcuffs.Perhaps then even our European allies offer more help to make the solution fairer.

  7. avatar
    IoannisTakis on May 18, 2013 - (permalink)

    Συμφωνώ με τους καθηγητές. Η συζήτηση γύρω από το ερώτημα κατά πόσον θα ήταν προς το συμφέρον της Κύπρου να αποφασίσει σήμερα αυτοβούλως να ανοίξει την πόρτα που οδηγεί σε έξοδο από το Ευρώ νομίζω έχει εξαντληθεί τόσο μέσα από τον παρόν άρθρο όσο και από προηγούμενα παρόμοια άρθρα λογικής και επιχειρηματολογίας. Ένας σώφρον άνθρωπος μπορεί εύκολα να κατανοήσει ότι αποχώρηση της Κύπρου από την Ευρωζώνη-ειδικά σήμερα κάτω από το βάρος της δεινής οικονομικά θέσης στην οποία βρίσκεται- θα ισοδυναμούσε με οικονομική αλλά κυρίως πολιτική αυτοκτονία.

    Πιστεύω ότι δύο είναι τα βασικά μηνύματα που θέλει να στείλει το άρθρο και τα οποία αξίζουν περαιτέρω προβληματισμού και ανάλυσης:
    (Α) Better the devil you know than the devil you don’t know. Καλύτερος ο διάβολος που ξέρεις από ότι ο διάβολος που δεν ξέρεις που σε ελεύθερη μετάφραση σημαίνει ότι αν έχεις να επιλέξεις ανάμεσα σε μια οικεία αλλά δυσάρεστη κατάσταση (παραμονή εντός μνημονίου και ευρώ) και μια άγνωστη κατάσταση (επιστροφή στην λίρα και άτακτη χρεωκοπία), είναι καλύτερα να επιλέξεις το γνωστό, διότι η άγνωστη κατάσταση μπορεί να αποδειχθεί χειρότερη. Αυτή η διαπίστωση εξάγεται σχεδόν από όλους τους λόγους για παραμονή στο Ευρώ τους οποίους παραθέτουν οι αρθρογράφοι. Βεβαίως αυτό δεν σημαίνει ότι απορρίπτουμε εκ των προτέρων χωρίς συζήτηση οτιδήποτε άγνωστο αλλά πριν προχωρήσουμε στην επιλογή του θα πρέπει να βεβαιωθούμε ότι αυτό θα μας φέρει πράγματι σε μια καλύτερη κατάσταση. Με τις θέσεις που έχουμε ακούσει μέχρι σήμερα από την αντίθετη άποψη (Krugman και άλλους οικονομολόγους) όχι μόνο δεν έχουμε πειστεί ότι η επιστροφή στην νέα λίρα θα ήταν καλύτερη επιλογή αλλά το κυριότερο δεν μπορούμε καν να βάλουμε τις δύο επιλογές σε μια ζυγαριά και να αποφασίσουμε καθώς δεν μας έχουν παρουσιάσει μια ολοκληρωμένη μελέτη που να καλύπτει το εύρος των συνεπειών (οικονομικών, κοινωνικών, πολιτικών) που θα σήμαινε μια τέτοια απόφαση και παράλληλα να τις ποσοτικοποιεί. Μέχρι να γίνει αυτό από μια αξιόπιστη επιστημονική ομάδα (ΕΙΝΑΙ ΜΙΑ ΠΡΟΚΛΗΣΗ ΓΙΑ ΟΣΟΥΣ ΑΣΠΑΖΟΝΤΑΙ ΚΑΤΙ ΤΕΤΟΙΟ ΝΑ ΤΟ ΑΠΟΔΕΙΞΟΥΝ) δεν μπορεί κάποιος αντικειμενικά να συγκρίνει τις δύο επιλογές και να καταλήξει στην καλύτερη.

    Από την άλλη η επιλογή για παραμονή στο Ευρώ και ταυτόχρονης λήψης του δανείου των 10 δις. από την τρόικα δεν μπορεί να σημαίνει εφησυχασμό, αλλά συνεχή προσπάθεια για τήρηση των όρων του μνημονίου και παράλληλα εξεύρεσης τρόπων (ΑΥΤΟ ΕΙΝΑΙ ΕΠΙΣΗΣ ΜΙΑ ΠΡΟΚΛΗΣΗ ΓΙΑ ΟΛΟΥΣ ΜΑΣ ΚΑΙ ΚΥΡΙΩΣ ΤΩΝ ΠΟΛΙΤΕΙΑΚΩΝ ΑΡΧΩΝ ΤΟΥ ΤΟΠΟΥ ΠΟΥ ΕΧΟΥΝ ΚΑΙ ΤΙΣ ΑΝΑΛΟΓΕΣ ΕΥΘΥΝΕΣ) και επικέντρωσης των προσπαθειών μας για την όσο το δυνατό γρηγορότερη έξοδο από τον φαύλο κύκλο της ύφεσης που έχουμε εισέλθει και είσοδο μας σε μια πορεία ανάκαμψης.

    (Β) Είναι ορατό το ενδεχόμενο η Κύπρος να μην τα καταφέρει εντός μνημονίου και να αναγκαστεί να οδηγηθεί στην έξοδο από το Ευρώ (και ίσως τελικά και από την Ε.Ε. προσθέτουμε εμείς) λόγω κυρίως του βάρους των 11 δις. που έχει επωμιστεί από το γνωστό πλέον για όλους μας ELA. Η θέση των καθηγητών είναι ότι το ποσό αυτό ισοδυναμεί περίπου με τα 10 δις. που έχουν διοχετευθεί άμεσα ή έμμεσα για στήριξη της Ελληνικής Οικονομίας και του τραπεζικού της συστήματος (κούρεμα Ελληνικών ομολόγων 4,5δις. και διοχέτευση 5,5δις. ELA/ρευστότητας σε υποκαταστήματα Κυπριακών τραπεζών στην Ελλάδα) και επομένως είναι πολιτικά και οικονομικά ορθό το Eurogroup να βρει ένα τρόπο να απορροφήσει το ίδιο το ποσό αυτό αποσοβώντας την οικονομική ασφυξία της Κύπρου. Η θέση αυτή είναι λογικά σωστή αλλά δυστυχώς δεν λήφθηκε υπόψη από το Eurogroup όταν λαμβάνονταν οι γνωστές αποφάσεις του Μαρτίου. Βεβαίως στηριζόμενο ακριβώς στο δίκαιο και την ορθότητα της θέσης αυτής η Κύπρος θα πρέπει να επιδιώξει την όσο το δυνατό μεγαλύτερη στήριξη της από Ευρωπαϊκά προγράμματα χρηματοδότησης για την ανεργία, την δημιουργία θέσεων εργασίας, την γρηγορότερη υλοποίηση διαρθρωτικών αλλαγών, την έναρξη έργων ανάπτυξης, την ενίσχυση της γεωργίας και κτηνοτροφίας, την προώθηση έρευνας και της καινοτομίας κ.α. Παράλληλα σε κάθε επίσημο ή ανεπίσημο ευρωπαϊκό φόρουμ συμμετέχουμε θα πρέπει οι Κύπριοι αξιωματούχοι/αντιπροσώποι να προβάλλουν συνεχώς αυτή την θέση με την ελπίδα ίσως ότι οι Ευρωπαίοι Εταίροι και κυρίως η Γερμανία μετά την λήξη των δικών της εκλογών θα κατανοήσουν το δίκαιο μας, αναθεωρώντας την στάση τους και βοηθώντας την Κύπρο έστω σε λιγότερο βαθμό με διαγραφή ενός ποσού από τον ELA.

    Επεκτείνοντας την θέση των καθηγητών για τον κίνδυνου φυσικού εξαναγκασμού λόγω των δύσκολων συνθηκών για έξοδο από το Ευρώ θεωρώ ότι οι αρμόδιες αρχές της Πολιτείας θα πρέπει να προετοιμαστούν και να έχουν στην διάθεση τους έτοιμο σχέδιο για το ενδεχόμενο εξόδου από το ευρώ που μπορεί να προέλθει είτε (α) λόγω κατάρρευσης της Ευρωζώνης, είτε (β) λόγω του ότι η Κυπριακή Οικονομία δεν θα τα καταφέρει εντός μνημονίου και είτε (γ) διότι σε κάποια φάση στο μέλλον οι πολιτικές και οικονομικές συνθήκες θα ευνοούν κάτι τέτοιο.

    Τέλος, θα ήταν καλύτερα για την πατρίδα μας αντί να μένουμε άπραγοι αναμένοντας από τους ισχυρούς της γης (ΔΝΤ, Γερμανία, Ρωσία κ.ά.) να κατανοήσουν το δίκαιο της θέσης μας και να μας βοηθήσουν (όπως λανθασμένα γίνεται με το Κυπριακό εδώ και 40 χρόνια με την κάθε επόμενη λύση που μας προτείνουν να είναι χειρότερη από την προηγούμενη… με ορατό το ενδεχόμενο στο τέλος να μην υπάρχει και αντικείμενο για λύση…) να επικεντρώσουμε τις προσπάθειες μας για εξεύρεση λύσεων στηριζόμενοι στις δικές μας δυνάμεις (ΑΥΤΟ ΚΑΙ ΑΝ ΕΙΝΑΙ ΠΡΟΚΛΗΣΗ). Λύσεις εκ των έσω που θα μπορούν να βοηθήσουν την Κύπρο να βγει από το οικονομικό αδιέξοδο και να μπει σε τροχιά ανάπτυξης.

    Για παράδειγμα αντί να χρησιμοποιήσουμε τα 2,5δις. του δανείου της τρόικας για ανακεφαλαιοποίηση των ΣΠΕ, της Ελληνικής Τράπεζας και άλλων τραπεζών που πιθανόν να έχουν πρόβλημα με τα κεφάλαια τους το ποσό αυτό να διοχετευθεί μέσω στοχευόμενων προγραμμάτων του κράτους στην πραγματική οικονομία με στόχο την διακοπή του κύματος της ανεργίας, την δημιουργία έργων ανάπτυξης και νέων θέσεων εργασίας, τον εκσυγχρονισμό και μείωση της γραφειοκρατίας στην Δ.Υ. κ.α. Οι ΣΠΕ και η Ελληνική Τράπεζα να ανακεφαλαιοποιηθούν με ιδία μέσα με τους καταθέτες που θα συνεισφέρουν να λαμβάνουν προνομιούχες μετοχές με προτεραιότητα στα μερίσματα. Εφόσον όλοι επικαλούμαστε το δίκαιο και την περιλάλητη αλληλεγγύη από τους ξένους ας δείξουμε από μόνοι μας αλληλεγγύη και δικαιοσύνη στους συμπατριώτες μας και την ίδια μας την πατρίδα. Δεν είναι δίκαιο να συνεισφέρουν όλοι για την σωτηρία της πατρίδας -στο μέτρο που τους αναλογεί- την στιγμή που όλοι μας αναλαμβάναμε ψηλό κίνδυνο έχοντας τις καταθέσεις μας σε τράπεζες και πιστωτικά ιδρύματα που έδιναν ψηλά επιτόκια; Ας ακολουθήσουμε το παράδειγμα των Νοτιοκορεατών που αρχές της δεκαετίας του 1990 όταν η χώρα τους ήταν στα πρόθυρα της πτώχευσης κρατούσαν ουρές για να παραδώσουν τα χρυσά αντικείμενα που κατείχαν για να βοηθήσουν την διάσωση της πατρίδας τους. Στα πλαίσια της αλληλεγγύης θα μπορούσαμε να αποδεχθούμε ακόμη όσοι από εμάς λαμβάνουμε μισθό ή σύνταξη μια μέρα του μήνα (1/30) από τα εισοδήματα μας να καταλήγει σε ένα ταμείο αλληλεγγύης για το κράτος μας.

    Το ELA μπορεί να μην καταφέρουμε να το εξοφλήσουμε γρήγορα αυτό όμως που μπορούμε είναι να αυξήσουμε με τις πράξεις μας την αξιοπιστία της οικονομίας και του κράτους κάτι που σε βάθος χρόνου θα επαναφέρει την εμπιστοσύνη των καταθετών στις Κυπριακές Τράπεζες (εδώ Τράπεζα Κύπρου) και παράλληλα θα φέρει -έστω σταδιακά- και την λύση στο πρόβλημα του ELA.

  8. avatar
    CP on May 18, 2013 - (permalink)

    I can’t argue with the points set out in your consice thesis. A ESM bail-out program for the banks would be preferable and fair (considering what transpired in Greece). However, we wouldn’t escape a full-fledged revamp program. And what would be the terms and ramifications of that? Could we avoid a CPB resolution/dissolution and a BOC resolution/reconstruction given also their inflated NPL exposure (mainly on unproductive projects-unless some people think that loading the whole population with unsustainable debt to buy more and bigger houses/condos was a good idea-I admit that some still believe that).

    After all, the banks misconduct, by litterally betting the house on Greek sovereign bonds, was unprecedented to say the least (otherwise, why should they bother so much in getting rid of all those e-mails?).

    Depositors in the two banks might have escaped a haircut or a less severe one, but I do not think all of them.

  9. avatar
    Solwv on May 18, 2013 - (permalink)

    Overall, I think I could agree with the article and the further comments. We have said it before that economics is not a pure science. You can make your models and sometimes you get it right and sometimes not because the boundary conditions could be unpredictable. Also the fault is clearly with everybody. Both old and new governments, central banks, ministries, bankers, and even Europeans.

    However, there is one element I disagree and it is within the last comment from Prof. Zenios. The Veto. In all intergovernmental agreements I drafted there is ALWAYS one article on decision making. It specifies that all decisions are taken unanimously within whatever activity is defined by the agreement. BUT if one Member State disagrees and believes that there is a national security issue, then the decision is sent to the Council for unanimous decision. THIS IS A VETO THREAT. It is included even in Research projects so that if the industrial interests of a MS are affected, then they can block any decision. In our case, our financial model has been destroyed (not just a single company), we have been asked to suffer significant loses (for which we morally have some responsibility, but as you all know the markets ARE NOT MORAL), we have been singled out without reasonable justification and a lot of innoscent people who have worked honestly, have lost their savings, jobs, companies, etc. Are these not enough to justify the threat of a veto on national security grounds?!? Our politicians and high level ministry people have no cuts!

  10. avatar
    Andreas Sergides on May 18, 2013 - (permalink)

    Somehow we all appear wise after the event.Personally I have serious doubts whether the crisis that hit Cyprus was preventable.After all the phenomenon is by no means a Cypriot privelege!What matters now is not the apportioning of blame but coming together to help in any way we can to get out of this mess the soonest possible.

    It is conceivable that working actively towards a solution of our National problem may create the right climate for recovery through financial aid fro the West and posssibly Turkey, who is very keen to see a quick solution to the Cyprus problem.

    There are allways opportunities if only we keep an open mind and discard the nationalistic blinkers.

  11. avatar

    Almost all decisions taken by the Eurogroup and the Central Bank of Cyprus regarding the restructuring of the banking system of Cyprus are wrong. As a result of these mistaken decisions the Cyprus economy will enter a severe and long recession. The Government Primary deficit will exceed 600m euro in 2013 and will be much higher than the 395m euro predicted in the MOU with Troika. Our GDP will be just above 15 billion and not 16.5 billion as predicted by Troika in the MOU.

    Restructuring of our banking system should never be done in just 4 weeks but over a period of time of 3-5 years. It took our banking system 10 years to accumulate so many mistakes and bad management and therefore more time was needed…..

    For the last 1 year I have been recommending to follow the Greek model of Bank restructuring with capital increases done gradually over a 3-5 years timeframe . Unfortunately the Eurogroup and the Central Bank of Cyprus chose a faster path, the Bail in .

    Over the last 3 weeks ,Greek bank shares tripled and Pireos Bank had a share price increase of 400%!! The main reason behind these exceptional share price increases was the fact the banks announced that they have found private investors who will participate in the 10% equity increases required now. The rest of the equity increases required will take place in the next years through warrants given now. TROIKA has agreed with this program. Greek banks have a second option available , the issue of co co bonds. (which I recommended for the Cypriot banks many times during the last months)

    This crisis will last for many years and as long as government continues with huge deficits there will be no end to it and as mentioned above the recent decisions of the Eurogroup will increase the government deficit.

    What is now going on with our banking system is not Restructuring but destruction…….

    We must rebuilt our financial and banking system as soon as possible. There is no other industry(except tourism) from which we can have substantial income in the future . Our financial model was correct , it was the management and the supervision of the banks that went wrong…….Our financial system and our gas reserves are the future of our Island.

    The theoretical and academic approach of solving the banking crisis in Cyprus followed by our Central Bank and instructed by the Eurogroup will create enormous economic and social problems in Cyprus over the next years……….

    Savvas Ttantis FCCA

  12. avatar

    one more comment regarding the Bail in Idea …

    I totally agree with the Board of the IMF and their concerns regarding the economic situation in Cyprus over the next years. They expressed their concern regarding whether there will be growth in the economy by 2015 after the austernity measures that will be imposed in the next months/years. The IMF representatives in Cyprus have no clue of how markets work and this is proved by the fact that they did dot object on the initial idea for haircut on unsecured depositors .(if that idea was approved by the Cypriot parliament, the banking system in south European countries would have severe liquidity problems) .Furthermore the IMF representatives in Cyprus did not object to the Governors suggestion to open the banks after the eurogroup’s decision. Thanks to the government’s intervention the banks did not open and a disaster was avoided.

    The IMF and Troika representatives in Cyprus, together with the central bank of Cyprus have no idea of the consequences from withdrawing liquidity from an economy that is leveraged 3 times its GDP at interest rates as high as 10% …….

    Capitalising the banks does not mean that liquidity will increase in the real economy. Banks will not be able to supply the needed cash flow in the real economy. The liquidity of Banks will stay under pressure for many years….

    Theory and practice are two different things……after the bail in , theoretically we will have solvent banks but practically we will have an insolvent economy……

    Savvas Ttantis

  13. avatar
    IoannisTakis on May 19, 2013 - (permalink)

    Dear Savvas Ttants i fully agree with your comments and/or suggestions. Direct or indirect channeling liquidity to the real economy is what will turn the button to restart the economy. Without this, our recently recapitalized banks will need again -very soon- recapitalization as reduced revenues of businesses and individuals in conjunction with the high interest rates will increase continuously doubtful debts. We need everyone involved with the subject of the economy to think of ways and solutions that will help the reboot of the economy in practice and not in theory.

  14. avatar
    Phylarchus on May 20, 2013 - (permalink)

    Above analysis of the three esteemed gentlemen expresses to a high degree also my opinion.
    I would only make a further point – consequence to the unbelievably cruel if not sadistical treatment, the Cyprus banks and our economy have been forced into in Greece: There must exist legal measures against each member of the troica separately (the ECB, the IMF and the EU commission) and perhaps against further persons or bodies, to support the editors’ claims. Further I suggest that the Cypriot members of the European Parliament raise the issue within the body suggesting that a special committee of MEPs should study the matter in depth.

  15. avatar
    Σάββας Τταντής on May 21, 2013 - (permalink)

    H KTK πριν λίγες μέρες ανάφερε οτι η συμφωνία με την Πειρεώς είταν συμφέρουσα κλπ κλπ …..συμφωνώ οτι είταν συμφέρουσα αλλά οχι για εμάς αλλά για την Πειρεώς. Η ΚΤΚ την μόνη Τράπεζα που κατάφερε να εξυγιάνση μέχρι τώρα είναι την Τράπεζα Πειρεώς. Την Λαική την διέλυσε και την ΤΚ την φορτωσε το ΕΛΑ…….

    “Τα κέρδη προέκυψαν σχεδόν εξολοκλήρου από την εξαγορά των κυπριακών υποκαταστημάτων, αφού οι εργασίες της Τράπεζας το πρώτο τρίμηνο του έτους ήταν ζημιογόνες.

    Σύμφωνα με τη χθεσινή ανακοίνωση της Τράπεζας, η «αρνητική υπεραξία» (negative good will) από την εξαγορά ανήλθε σε €3,4 δισ. “

  16. avatar
    Σάββας Τταντής on May 22, 2013 - (permalink)

    Σάββας Τταντής 11-4-2013

    “Η ονομαστική αξία των δανείων που πωλήθηκαν είταν 23.9 δις.

    Υπηρχαν πρόνοιες στα βιβλια των τραπεζών περίπου 4.7 δισ (20%)

    Εμεις , πουλησαμε τα δάνεια με ΑΞΙΑ 16.2 δις επιδή έγιναν σε αυτά προβλέψεις υψους 32% με βάση το ΜΕΛΛΟΝΤΙΚΕΣ ζημιές που υπολόγισε η ΠΙΜΚΟ δηλαδή με εκπτωση 7.7 δις ευρω. (23.9-16.2)

    Αρα υπάρχει μια επιπλέον διαγραφή ύψους 3 δις (7.7-4.7) η οποία έγινε τώρα και δέν ειταν στα βιβλια των τραπεζών εώς σήμερα.

    Τα συνολικά μη εξυπηρετουντα δάνεια (πανω απο 90 μέρες) των τραπεζών στην Ελλάδα ειταν 38%….έγινε προβλεψη για 32% . Διαγράψαμε σχεδόν ολα τα μη εξυπηρετούντα δάνεια ενώ σχεδόν ολα έχουν εμπράγματες η προσωπικές εξασφαλίσεις.

    Η τελική πράξη έχει ως εξης. Πουλησαμε δάνεια Κουρεμένα κατά 32% 16.2 δις σύν 200 άλλα περιουσιακά στοιχεια δηλαδη 16.4 δις , για αυτα δώσαμε καταθέσεις 15 δις άρα μια διαφορα 1.4 δις. Πιάσαμε 500 εκ και μένει μια επιπροσθετη ζημιά 900 εκ ευρω.

    Η τράπεζα Πειρεώς ειχε συνολικές προβλέψεις μονον 12% εμεις τους δώσαμε τα δικά μας δάνεια με 32% προβλεψεις (κούρεμα)

    Αυτοί είναι και οι λόγοι που η Πειρεώς έβγαλε ανακοίνωση οτι ο ισολογισμός της βελτιώθηκε απο την εξαγορά.

    Και ένα τελευταιο………..Η Ελλάδα μας προκάλεσε ζημία περίπου 12 δις (αναλυση ειχα σε προηγούμενο μύνημα) . Εμεις τους δώσαμε κουρεμενα δάνεια και ακούρευτες καταθέσεις. Εφόσον στην Ελλάδα είταν υποκαταστήματα μας , γιατί δεν κουρέψαμε τους καταθέτες στα ελληνικά καταστήματα μας????”

  17. avatar
    Phylarchus on May 22, 2013 - (permalink)

    A body which is not only entitled to but also has both a vital interest and an ethical duty to pursue legal measures in the case, is/are the former Board(s) of Directors of Bank of Cyprus: Mr A, Artemiou, Mr Th. Aristodimou, Mr K. Severis, Mr Chr. Christofides, Mr M. Mavrommatis, Mr B. Rologis Mr Chr. Mouskis, Mr A. Iakovides and several others have not only been collectively accused of being partly responsible for the catasrtophy, but have much more than that suffered immense personal financial losses. They simply have the duty to exploit all available means and employ the best international legal advisers to avoid total collaps, expose the wild plundering occurred in Greece and demand partial rehabilitation, even after the typhoon, of Cyprus’s oldest and most valuable financial institution.

  18. avatar
    Phylarchus on May 29, 2013 - (permalink)

    Μετά τη σημερινή δημοσίευση του περιεχομένου του “απόρρητου εγγράφου” της Κεντρικής για τις 16 μέρες διαπραγμάτευσης για το μέλλον των κυπρ. τραπεζών στην Ελλάδα οφείλω να επανέλθω:
    Τέτοιες διαπραγματεύσεις, αν λάβει κανείς υπόψη προηγούμενες περιπτώσεις εξαγορών και συγχωνεύσεων τραπεζών, διαρκούν από πολλούς μήνες μέχρι μερικά χρόνια. Εδώ λήφθηκαν αποφάσεις για το μέλλον της οικονομίας μιας ολόκληρης, έστω και μικρής, χώρας και μάλιστα χώρας της υποτίθεται προοδευτικής Ευρώπης, μέσα σε ελάχιστες μέρες. Όχι μόνο αυτό. Οι αποφάσεις λήφθηκαν, τουλάχιστο όσον αφορά τη δική μας πλευρά, από άτομα που δεν είχαν στο παρελθόν ποτέ ασχοληθεί με τέτοια άκρως εξειδικευμένα και πολύπλοκα θέματα, τόσο οικονομικής όσο και νομικής, τραπεζικής και πολιτικής υφής. Λέχθηκε ότι η πλευρά μας βρισκόταν υπό αφόρητη πίεση. Δεκτό, αλλά θα μπορούσε να υποβάλει κάποιους όρους που να της δίνουν το δικαίωμα να επαναδιαπραγματευτεί στο μέλλον, π. χ. μετά από μερικά χρόνια, τουλάχιστο κάποια στοιχεία διόρθωσης της συμφωνίας, έτσι που και οι δυο πλευρές να ήταν πιο ασφαλισμένες. Ένας έμπειρος διαπραγματευτής με γνώσεις και εμπειρίες στο θέμα, έχοντας και τη βοήθεια ειδικών συμβούλων, θα μπορούσε να αποσπάσει με ευκολία πιστεύω μια τέτοια συμφωνία, δεδομένων των κινδύνων που εμπεριείχε η υπέρ το δέον βιασύνη πώλησης των τραπεζών. Οτιδήποτε άλλο θα ήταν προτιμότερο από τον κίνδυνο να παιχτεί στο πράσινο τραπέζι το μέλλον της οικονομίας του τόπου και πέραν τούτου να αφήνονται αιχμές μήπως τελικά διαδραμάτισαν ρόλο σε αυτή την αδιαφανή κραιπάλη δισεκατομμυρίων άγνωστοι στο πλατύ κοινό παράγοντες.

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