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Home Publications News & Announcements

Privatisation process to remain in Greece

September 1, 2013
in News & Announcements
Reading Time: 4 mins read
OUTGOING Central Bank (CB) Governor Athanasios Orphanides yesterday accused the government of not taking the necessary measures to protect the economy, despite the dangers having been more than evident.

Speaking to the House Finance Committee for the last time as Governor, Orphanides said the current government, which came into power with President Demetris Christofias in February 2008, had managed to take a surplus of over €500,000 in 2007 to a €1.6 billion deficit in 2009.

Orphanides basically said had taken a prosperous economy and brought it to a “critical” and “dire” point.

“We were spending like there was no tomorrow,” said Orphanides.

At the beginning of 2008, he said, Cyprus enjoyed low borrowing costs with 4.0 to 5.0 per cent interest rates, with 2007 closing on a €554,000 surplus – around 3.5 per cent of the gross domestic product (GDP).

“However unfortunately, a dramatic deterioration of the fiscal balance started in 2008… indeed under conditions of strong economic growth in the range of 3.6 per cent in real terms and an increase of the nominal GDP by €1.3 billion,” he added.

“In 2009, the surplus transformed into a deficit of 6.1 per cent of GDP,” said Orphanides. “In the period 2007-2009, a deficit chasm opened in the range of €1.6 billion.”

He said the fact that other countries went into recession at the same time probably stopped Cyprus from realising the full impact of this.

Orphanides blamed the increase in expenditures on the deterioration in public finances. “It is due to increased expenditures on social benefits, salaries and pensions,” he said.

And the deterioration continued in 2010 and 2011, he added, with expenditures increasing by around 4.0 per cent in real terms each year, while GDP remained stagnant.

As a consequence of this imbalance and the continuing deficit, said Orphanides, the state’s public debt increased by €4.3 billion from 2008 until 2011.

Orphanides also laid the blame for Cyprus’ exposure to Greek debt and bonds squarely on Christofias, saying he himself wasn’t even consulted when the President attended the summit meeting last October during which EU leaders were deciding what to do about Greece.

He said Christofias was wrong to accept the Greek haircut.

“The President of the Republic made the wrong decision when he agreed to this,” said Orphanides. “He could have asked for measures that would have protected Cyprus. I don’t know what happened in the summit meeting on October 26 and 27, but if it was me, the least I would have asked for would be to offer local banks the ability to request support from the European Financial Stability Mechanism (EFSM) directly, without having to go through the state. I would have opposed to the Greek haircut.”

He said he would never understand EU leaders’ decision to take on 74 to 80 per cent of the Greek debt, when all the figures indicated economic weaknesses of the member states’.

“I am disappointed that the President of the Republic never asked for my views on this matter,” said Orphanides. “I spoke with the Finance Minister at the time and told him I was at the President’s disposal, but he decided not to meet with me. Of all EU states except Greece, Cyprus was in the most danger from this decision. Yet he didn’t ask for my advice. My other counterparts informed me they were in daily contact with their countries’ leaders leading up until this decision was made.”

Regarding Cyprus banks’ exposure to Greek bonds – especially Marfin Investment Group, which lost some €2.5 billion from the Greek debt write-down – Orphanides said the banks were responsible for their decisions.

“But if a bank needs temporary help, the state must be in a position to help,” he  said. “But unfortunately the state isn’t in a position to help.”

Orphanides also revealed there were intense “political interventions” aimed at ‘relaxing’ the CB’s supervisory power, which he said he didn’t succumb to. “My conscience is clear as none of these interventions affected my decisions,” he said.

Orphanides said there was an attempt to undermine his supervisory power, particularly from “a certain Greek businessman”. He did not elaborate although it is thought to be a reference to former Marfin chairman Andreas Vgenopoulos.

Orphanides said the “certain Greek businessman” had been encouraged by Christofias.

“I was subjected to criticism in a very disdainful manner by a certain businessman, who was in fact invited to the Presidential Palace by the President of the Republic, to make statements; and it was all connected with the relaxing of supervision,” said Orphanides. “When the government identifies with a specific businessman who is serving the interests of a specific bank, this is dangerous. It gives added arguments to those who want supervision to be relaxed. But my conscience is clear as I always acted in the frame of the law.”

Orphanides also underlined the need for the recapitalisation of Cyprus’ banks, which needs to be completed by the end of June otherwise Cyprus will have to enter the EFSM. Concerning this, in a brief address to the committee, Finance Minister Vassos Shiarly said the government had specific plans to support the banks, if they failed to recapitalise.

In response to the criticism, government spokesman Stefanos Stefanou pulled no punches, saying it was “truly outrageous” for the person responsible for supervising the banks to try to “lump” responsibility on the government.

“Instead of Mr Orphanides apologising for not exercising his powers as the supervisory authority of the banking system and preventing the Cypriot banks’ exposure to Greek bonds, he is trying to lump his responsibilities on the government,” he said.

Stefanou argued the banks’ exposure to Greek bonds was the reason agencies downgraded Cyprus’ credit rating, leading to the government’s exclusion from international markets and losses of up to three billion euro in the banking system, the biggest since the Turkish invasion.

“It is this exposure which constitutes the biggest problem of the economy, creating liquidity problems in the market,” he said.

Stefanou argued that Basel regulations covering the banking sector provide that the supervisory authority has the responsibility to monitor the concentration of risk and take corrective action.

“What measures did the Central Bank governor take? Let him answer. And why did we reach three billion euro? Really, how much damage did the banks have to sustain, and consequently, the economy before he himself realised there was a problem?”

The spokesman said the government warned Orphanides about the problem in the banking sector but he failed to take measures while the opposition accused the government of interfering in the work of the governor.

“We’re sorry to say that Mr Orphanides instead of being a partner of the government, acted as its rival and worked with the opposition to take shots at it,” said Stefanou, adding, “The actions or inaction of each is judged by the result. And here the results speak clearly.”

Source: Cyprus-Mail

By Jacqueline Agathocleous

Published on May 1, 2012

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