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Allegations of loan write-offs
‘Faith in the local political establishment has also been shaken by a list published in the Greek papers of current and former Cypriot state officials who allegedly had their loans written off by banks over the past five years. An official investigation has been launched.’ (FT Stothard March 31 2013)
Bank Board dismissals
The entire boards at Laiki and Bank of Cyprus were dismissed in the week following the negotiation of the bank bailout. (FT Stothard March 31 2013)
The Judicial Enquiry
President Nicos Anastasiades establishes a three-judge inquiry to investigate the country’s banking disaster on April 2nd 2013. He urges it to look into transactions of his family law firm as a matter of priority. The judges will deliver their report within three months to the Attorney General.
Questions have arisen over the transfer of more than €20m out of Laiki Bank by the president’s son-in-law days before its collapse. The president strongly denies wrongdoing.
Cyprus’s Commmunist daily, Haravghi, has published a list of more than 10o companines who pulled more than €500m from Laiki in the two weeks before the March 15th haircut was announced.
The FT reports that a company controlled by the Loutsios family emptied two Laiki accounts containing €21m on March 12 and 13 and that two personal accounts in the family containing €6m were ‘cleaned out’ on March 3 and 4.
The President’s daughter, Elsa, a partner in the family law firm, is married to Yannos Loutsios, Antis and Katia Loutsios’s son. The Loutsios family denies wrongdoing. A company statement said money was transferred to Bank of Cyprus (€10.5m) and to Barclays Bank in London (€10.5m to buy real estate).
According to the Haravghi list companies controlled by Rinat Akhemtov, Ukraine’s wealthiest businessman, which are clients of President’s Anastasiades law firm, transferred €30m from Laiki Bank in the first two weeks of March. A spokesperson for the companies said that the money had been withdrawn due to the wide reporting of Cypurs’s financial crisis and as a prudent precaustion to limit the companies’ exposure in advance of the forthcoming debt restructuring.
Another inidivudal named in the Haravghi list is Andrei Akimov, president of Gazprombank. According to the FT Mr Akimov transferred €2m from his Laiki account on March 6 (for all above see FT Hope and Olearchyk April 2 2013).
Michalis Sarris, Cyprus’s finance minister announced his resignation on April 2 2013. He was replaced by Haris Georgiades, the labour minister and a close associate of the centre-right president.
Clearly... mistakes were made, there was excessive growth in bank credit, in government spending. But I don't think it needed to come to this. "I think this could have been corrected without this really seismic assault on the Cyprus economy," he said.
'He stepped down stating his job was done, and that his position was untenable since a probe into the island's economic demise was likely to include his term too as head of one of a major Cypriot lender before he became minister.' Kambas Cyprus Mail 5 April 2013
The Memorandum of Understanding
The draft memorandum called for an overhaul of the bank sector, and fiscal consolidation through spending cuts and implementing structural reforms to improve competitiveness.
A key objective of the EU-IMF programme appears to be restoring the soundness of the banking system restructuring, resolving and downsizing financial institutions after the closure of Laiki Bank, and the restructuring of Bank of Cyprus, where uninsured depositors likely to lose up to 60 per cent of their funds.
Mr Georgiades, who studied economics and international relations in the UK, will be in charge pf pusihing structural reforms that are anathema to Cyprus’s powerful public sector trade unions. These will include the abolition of thrice-yearly index-linked wage increases and privatisations of state controlled organisations such as telecoms and electricity and Larnaca and Limassol ports.
The memorandum sets fiscal targets, including a primary budget surplus before debt repayments of 4 per cent of national output in 2018. Cyprus’s low corporate tax rate of 10 per cent will increase to 12.5 per cent – the same rate as Ireland – and with taxes on interest and dividends will increase to 30 per cent. (see FT Hope 2 April 2013).
Letter received by Cyprus newspaper Politis making death threats against President and Governor of ECB from a group calling itself 'Depositor Rescue Group: to the death' or 'Team for saving deposits – sworn until death 'reports Cyprus Mail 6 April 2013 and FT Hope 5 April 2013.
Portugal rules against austerity measures
But could only work in Cyprus if 'there are constitutional requirements for fair, progressive and non-discriminatory budget measures' ? (see FT Wise 5 April 2013).
Leaving the Euro?
Quitting the single currency would devastate wealth, fuel inflation, lead to default and leave Cyprus friendless in a troubled neighborhood.
But the main opposition, the Communist Party, wants to pull out. A smaller opposition group wants to stay in the euro but kick out the so-called troika of creditors — the European Commission, the European Central Bank and the International Monetary Fund. The country’s influential archbishop is also critical of the troika.
Leaving the euro and restablishing the Cypriot pound would probably lead to a devaluation of 50 per cent and massive inlation because 80 per cent of key commodities are imported and all oil is imported. Debt default would likely result.
Dixon argues that capital controls need to be lifted to help normal economic activity return and to removed the de facto separation of the Cypriot euro from the broader euro.
The troika should help lift the controls as soon as possible. Otherwise, Cyprus may well quit the euro and, small though it is, that could destabilize the zone.
Hugo Dixon, New York Times, 7 April 2013
Megan Greene argues at Bloomberg blog that if certain conditions can be met exit from the euro represents the best option for Cyprus.
Attorney General shoots himself and Cyprus in foot
Not politcal fallout from the bailout as such but you don't need much imagination to know how this will go down in Northern Europe
Cyprus ATTORNEY-general (AG) Petros Clerides used his position to suspend prosecution for his son, Christodoulos Clerides, who was caught driving over the alcohol limit in a car that had not passed an MOT and for which he did not have up-to-date road tax.
But the AG has said he has done nothing wrong by helping out his son who was 32 at the time, because he would have done the same for someone else’s child.
Bailout awaits German parliamentary approval
From FT 10.4.2013 Peel, Hope and Terazono repport on Cypurs gold sale plans:
[The Cyprus bailout programme will face] the hurdle of Germany parliamentary approval. It will be presented to a special meeting of the budget committee of the German Bundestag on April 16, and to a full plenary session of the parliament on April 18.
Parliamentary budget experts in Berlin were still studying the details on Wednesday, and one opposition official said that “there are still many questions to be answered” before the Bundestag vote.
Pressure builds on CBC Governor to resign
Mario Draghi, president of the European Central Bank, has warned the Cypriot government against sacking Panicos Demetriades, the central bank governor.
In a letter to the Cypriot president and speaker of parliament, the ECB head underscored the independence of EU central banks, adding that the launch of procedures that could lead to a governor’s dismissal marked “a very serious step”.
A decision to remove the governor would be subject to review by the EU court of justice, he said.
FT 11 April 2013 Hoe and Hadjipapas
EC FinMin Group approves Cyprus Bailout: Size of Hole not known
Ministers gave final sign-off to the €10bn rescue at the meeting, but Mr Rehn acknowledged the uncertainty created by the chaotic handling of the bailout and said it was almost impossible to know how hard the Cypriot economy would be hit.
“I don’t deny under the current circumstances there is some uncertainty on the exact figures,” Mr Rehn said.(FT Spiegel 12 April 2013).
Cyprus government believes it can mend economy
New finance minister, Harris Georgiades, said in Dublin that despite scepticism among private-sector economists over his country’s ability to meet the terms of the bailout, he believed it was achievable.
“We know we are in for a deep recession. We know unemployment will rise; we know there is a rough ride ahead,” said Mr Georgiades. “We are determined to adopt and implement all those reform measures that we should have adopted a long time ago. . . I know we can do it. We shall make it happen.”
Widening rift between CBC and government on gold sale (or not)
However, comments by the central bank after the details of the bailout package including the gold sale, were leaked, further widening an existing rift between the Cyprus central bank and the Nicosia government. FT Terazono 12 April 2013
The price of gold fell 4% to a 21 month low on April 12 2013.
Two CBC Board members resign
Two members of the central bank’s board, Andreas Matsis and Haralambos Akhniotis, resigned in recent days, a spokesman for the Nicosia-based central bank said today without elaborating.
Those resignations are yet to be explained and the implication is “that the government will be able to appoint people that are closely aligned to it,” Demetriades said.
And two more
'Four bank board members have resigned over the governor’s performance.'
(FT Spiegel 15 April 2013)
Economic Policy Council formed
Cyprus’s President-elect Nikos Anastasiades has appointed Nobel economics laureate Christopher Pissarides to head the country’s newly formed economic policy council.
The new body will oversee the country’s economy and issue proposals to the president regarding macroeconomic issues, Pissarides told Cypriot state broadcaster CyBC on Tuesday.
Marios Clerides Hellenic Bank chairman?
Sarris says initial bail-in was really tax on deposit interest that went wrong
FORMER finance minister Michalis Sarris yesterday sought to set the record straight regarding a controversial deposit haircut bill, saying it was in fact legislation to tax gains from interest.
The bill however did include a condition to tax part of deposits if the capital was withdrawn before the end of the year, he told reporters. (Cyprus Mail 13 April 2013)
Maltese FinMin says Sarris proposed tax on all deposits
'The suggestion of a tax imposed on all savings in Cypriot banks came from their own Finance Minister who argued it was preferable to having a heavier tax levied only on those with €100,000 or more, Finance Minister Edward Scicluna told Parliament yesterday'. (Times of Malta 16 April 2013).
De facto citizenship deal for big foreign losers in Cyprus
Cypriot President Nicos Anastasiades has a new idea for winning frightened investors back to his country. He wants to offer Cypriot citizenship to foreigners who have lost more than €3 million
($3.91 million) as part of Cyprus' one-time forced levy on bank accounts. The president made the announcement in a speech to Russian businesspeople in Limassol on Sunday. Spiegel Online
15 April 2013
Hmmm.... According to the Haravghi communist daily a list companies controlled by Rinat Akhemtov, Ukraine’s wealthiest businessman, which are clients of President’s Anastasiades law firm, transferred €30m from Laiki Bank in the first two weeks of March. A spokesperson for the companies said that the money had been withdrawn due to the wide reporting of Cypurs’s financial crisis and as a prudent precaustion to limit the companies’ exposure in advance of the forthcoming debt restructuring (see FT Hope and Olearchyk April 2 2013).
New Finance Minister's role in negotiations
Mr Haris Georgiades, Cyprus's new finance minister appears to have got his job 'more out of political loyalty than his knowledge of international finance' and his loyalty as a long-time President Anastasiades. A view apparently reflected by EU officials during the bailout negotiations,
With relations between Mr Anastasiades and Mr Sarris strained... Mr Georgiades became one of two close aides who finalised the deal with negotiators.
EU officials expressed annoyance at the time. “Anastasiades is not listening to any experts any longer,” complained one senior eurozone official involved in the talks.
On the bailout and reactions in Cyprus Mr Georgiades said in an interview with the FT
“Of course there has been a shock. We knew the time of reckoning would come and postponing decisions was not a wise policy,” he said. “This time of reckoning has come, there is frustration about the actual remedy that was offered to us but I do not think there is an anti-European feeling.
“Nor is there an approach which places the blame on anyone else but ourselves. It is our mistakes and our hesitation to take decisions that have led us to this difficult position.”
(FT Spiegel 15 April 2013)
Born 1972, Mr Georgiades has a degree in economics and International Relations and an MA in Euro-Mediterranean Studies (University of Reading, United Kingdom).
He became an MP for Nicosia in May 2011.
General Secretary of the DISY Youth Organisation (NEDISY) (2001-2003).
President of the Organisation of Young Scientists (ONE) of DISY (2004-2006).
Director of the President’s Office of DISY (2006-2011).
Spokesman of DISY.
Member of the DISY Executive Council and of the DISY Political Bureau.
Head of DEFA natural gas public company to be sacked following accusations of 'serious misconduct' by government spokesman following Attorney General report to cabinet
If the populist press in Germany was short of stories to run on Cyprus they certainly don't have to look too far.
First came accusations of massive deposit withdrawals just before the bailout that allegedly came perilously close to the president, then a list was published of alleged loan forgiveness to politicians, then the Attorney General admits that he arranged for the prosecution of his son on a drunk-driving charge to be dropped - because he would have done it for someone else's son (the son in question was 32) - and now the ex-chair of the Cyprus energy regulator is under investigation for 'serious misconduct' following a report from the AG to the Cabinet.
Here's how the Cyprus Mail reported the story.
The head of DEFA natural gas public company is to be sacked following accusations of 'serious misconduct' by the government spokesman following an Attorney General report to the cabinet.
A PROBE is underway into possible criminal offences committed by Costas Ioannou in his previous role as head of the energy regulator.
Last week the Cabinet took a political decision to sack Ioannou from his current position as head of the natural gas public company DEFA. He headed energy regulator CERA in 2009. The move followed a report submitted to the cabinet by the Attorney-general, with the government spokesman speaking of “serious misconduct.”
Ioannou, who has the right of appeal, ... but said that he planned to contest the decision.
The investigation into Ioannou draws on an ongoing civil lawsuit filed which concerns a licence awarded to a Russian company to operate a private power station. The licence was given in 2009 while Ioannou was chairman of the energy regulator, CERA.
To obtain the licence, the company had engaged the services of Andreas Hayiannis as a mediator/facilitator. Hayiannis is a relative of Ioannou’s.
PEC Powerenergy, the Russian company that Hayiannis was assisting, was a ‘special purpose vehicle’ whose ultimate goal was to sell its shares to another concern once it had acquired the licence from the energy regulator.
In addition to helping with the licence, Hayiannis’ arrangement with the Russian company also involved seeking out possible buyers for the Russian company.
But according to Hayiannis’ sworn statement, the deal went sour in 2011 when a British company acquired all the shares of PEC Powerenergy.
The first meeting to sound out the British company took place at Nicosia’s Hilton hotel in September 2011. Giorgos Lillikas, a former commerce and foreign minister and a candidate in the recent presidential elections attended the meeting.
'Lillikas, Hayiannis and Ioannou hail from the village of Panagia, Paphos.'
It must be remembered that the three cases above - save that of the AG to which he blithely admitted responsibility on the grounds of paternal duty - are under investigation and no-one is being prosecuted.
Parliamentary report finds CBC Governor committed 'serious misconduct'
A leaked 15 April 2013 letter from the President pf Cyprus to Mario Draghi, head of the ECB, notes that a arliaemntary enquiry into the Governor of the CBC has discovered 'serious misconduct' in relation to the failure to disclose information to the enquiry conducted by Alavarez and Marsal into Laiki Banks and Bank of Cyprus.
The FT reported on the six page letter (Hope and Hadjipapas 16 April 2013) which alleged that
Panicos Demetriades, the central bank governor, ignored the ECB’s advice on supporting banks with liquidity problems, was overly influenced by politicians under the previous government and had lost the trust of his board of directors.
Mr Demetriades did not insist that Laiki came up with a restructuring plan following its nationalisation last June. The bank went on receiving large amounts of emergency liquidity assistance (ELA) to maintain operations even though it was effectively bankrupt.
The President argues that the CBC Governor should have 'annulled' the Emergency Liquidity Assistance extended to Laiki bank and 'demonstrates his failure of effective prudential regulation and supervision of the banking system . . he is obliged to protect,” Mr Anastasiades said.
Mr Demetriades admitted in a press conference in April 2013 that Laiki’s insolvency was “evident” in June 2012 but that it was kept afloat with ELA for political reasons. He seemed to imply that the government of Demetris Christofias 'feared a breakdown of public order if Laiki was allowed to collapse before the February presidential election' according to the FT writers.
German parliament set to approve Cyprus aid
Today the German parliament wil approve the EU ESM funding to Cyprus.
The position of the SPD has been particularly interesting. According to the FT Ehrlich 16 April 2013
'The SPD this year considered voting against Cypriot rescue, seeing it as a chance to inflict a damaging defeat on Ms Merkel in advance of September’s elections.'
It appears that the SPD had a direct and unfortunate impact on the harshness of the bailout - or bail-in as it became. The Green party were involved in this too.
Said Carsten Schneider, SPD budget spokesman, “The bail-in (of some creditors and depositors) was a game changer ...without that, an approval would have been impossible for us.” Mr Schneider said the bail-in was a “template for the future banking union.”
If the SPD holds to this line, and is now being preicted the next German government is formed of a grand coalition of the CDU and SPD its appears unlikely that future bailouts will become easier.
Position of German Greens on Bailout - anti-money laundering, fairer coporate tax rate, bail-in depositors
Priska Hinz, the Green party’s budget spokeswoman reported by Bloomberg 16 April 2013
Green lawmakers sought three main conditions: a monitored plan to tackle money laundering; adoption in Cyprus of a “fairer” corporate tax rate; and the harnessing of large-scale deposits and shareholdings to help pay for the restructuring of Cyprus’s two largest banks
German Parliament Approves Bailout
Of the 602 members of the Bundestag present, 487 backed the bailout, 'with the remaining 115 made up of rebels within the coalition and the main opposition parties plus all 76 deputies from the leftist party Die Linke'.
In an effort to keep the debate on Cypurs and not other EU members with large banking secotrs finance minister Wolfgang Schäuble noted that Cypriot banks were only supported by the island’s government which had been locked out of bond markets for 18 months, while in other countries, such as Luxembourg, the subsidiaries of foreign banks played a major role.
This comment echoes strangely with the fateful decision taken on March 31st 2011 to restructure Marfin/Laiki bank Marfin Egnatia Bank Public Co Ltd such that its Greek subsidiary became a branch of the Cypriot bank. This shifted potential liabilities for bad loans in the Greek branch of Laiki to the Cypriot authorities (see Gabriel Sterne in The Banks).
Attorney General instructs government to have a parliamentary vote on the bailout
President announces counter-crisis measures
18 April the President addresses the nation and announced a raft of counter-crisis measures including
Direct quote from press release
In the 3rd annual corruption perception survey conducted by TIC, 953 respondents participated from all major cities of Cyprus, representing all age groups, with people aged 18-30 years (39%), 31-40 years (21%), 41-50 years (19%), 51-60 years (13%) and 61 years + (8%). The vast majority of respondents (91%) believe that corruption is a major problem, while they also believe that corruption exists both nationally (85%) and locally (82%) and is going to increase due to the current economic crisis (79%).
Regarding the existence of corruption within public and private institutions, the survey found that corruption is considered to be mostly widespread among politicians (96%), public servants responsible for public procurement (94%), local authorities (93%) and officials at regional and local level (93%) as well as the Police (93%). Consistent with the findings of the two previous studies of TIC, the respondents of the survey continue to perceive that politicians are the category of people who abuse their position and power for personal gain the most out of all the categories of people listed in the question. In line with the findings of the two previous surveys (2010 and 2011) of TIC, the respondents strongly believe that politicians are the most corrupt category with responses of 90% and 93% respectively.
Cyprus crack downs on graft and reform political system
Report in FT (Hope and Hadjipapas 29 April 2013) on President's moves to crack down on graft as parliament prepares to vote - April 30th - on bailout one vote away from a majority.
Hubert Faustmann, a political-science professor at the University of Cyprus says on graft,
“Elite corruption is endemic, there’s an initial public outcry when scandals are revealed but they fade away without coming to court.”
Just learned this great word - koumbarokratia - 'Koumbaros = best man (but also means generally your backscratch pals) . Thanks to @FionaMullenCY
Augean Stables - more cleaning required as land registry offfical nabbed for moonlighting as estate agent
Cyprus Mail 30 April 2013
THE INTERIOR minister yesterday ordered the suspension of a land registry official who joins a growing number of his colleagues under disciplinary and/or criminal investigation in relation to
“One more employee was suspended, who was working as a real estate agent while being a land registry official,” Interior Minister Socrates Hasikos told reporters yesterday.
A court had already ordered the official to stop working in real estate if he were to continue working for the state’s land registry, he said. “He was working as a real estate agent while having available at his disposal the land registry’s entire infrastructure.”
See 24 April 24 Cyprus Mail when story first broke
According to Socrates Hasikos, Interior Minister, seven land registry officials are under criminal or disciplinary investigation in relation to allegations of corruption, bribery, embroilment, violation of personal data laws and depriving the state of revenue.
Bailout approved 29 to 27 in Cypriot parliament
'after Demetris Syllouris, a deputy from the small European party, backed the governing coalition led by the centre-right Democratic Rally party'.
Lawmakers also approved further salary cuts for 60,000 civil servants, about one-quarter of the workforce, and a new tax on property as conditions of the MofUnderstanding signed between Cyprus and the troika.
New Bank of Cyprus Chair and deputy
Former central bank of Cyprus official as interim chairman and a Turkish Cypriot financial consultant as his deputy. Board is still casting around for a chief executive to oversee the acquisition of assets from Laiki Bank. Alavarez and Marsal working with BofC on restructure.