Saturday, 7 July 2012

Christofias to blame for Cyprus bankruptcy, not Greece

On Wikipedia, it says that: ‘Denial (also called abnegation) is a defense mechanism postulated by Sigmund Freud, in which a person is faced with a fact that is too uncomfortable to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence. The subject may use:

    •    simple denial: deny the reality of the unpleasant fact altogether
    •    minimisation: admit the fact but deny its seriousness (a combination of denial and rationalization)
    •    projection: admit both the fact and seriousness but deny responsibility.’


This is, of course, a perfect description of the syndrome being suffered by Cyprus’ president, Demetris Christofias. It was evident during the Mari disaster – which Christofias shamelessly tried to blame on his foreign minister, defence minister, the head of the National Guard and the victims themselves – and has revealed itself again as he tries to pin responsibility for Cyprus’ bankruptcy on Greece, suggesting that it is the exposure of Cyprus’ banks to the Greek economy that has brought the Cypriot economy down. Specifically, Christofias argues, the haircut agreed for Greek debt devastated the coffers of Cyprus’ banks – large holders of Greek debt, particularly the Laiki (Popular) Bank – which now found themselves scrambling to attract funds to cover losses estimated at €4.2bn.

However, the question isn’t Cypriot financial exposure to Greece – which is self-evident – but why when the EU was agreeing to the haircut deal, Cyprus, which had so much to lose from Greece’s debt-markdown, supinely went along with it?

Only yesterday, Cyprus’ finance minister Vassos Shiarly, admitted that, given its implications for the Cypriot economy, Cyprus should not have acquiesced to the terms of the Greek haircut.

‘Effectively, because of our close financial proximity to Greece, we were called upon to pay a very heavy price,’ he said.

‘The real problem stems from that particular investment. If you ask me whether [the debt writedown] was a fair way to deal with it, I would say no, this was not a fair way of dealing with it.’

Instead, Shiarly said, the haircut should have been made according to the size of each euro zone economy, with German paying most – around 27 percent of the total – and Cyprus just 0.2 percent.

‘If our share had been fairly evaluated,’ Shiarly said, ‘our total loss might have been in the order of 200 million euros – petty cash these days.’

So, why didn’t Cyprus resist the debt-writedown deal?  Who was responsible for going along with it in the form it took and ruining Cyprus’ economy?

According to this Open Letter published on 20 June by Athanasios Orphanides, until April governor of the Central Bank of Cyprus, the person who took the decision not to object to Greece’s debt deal was none other than President Demetris Christofias. Orpahnides writes:

‘There is personal responsibility for the condition the Popular Bank is in today. You, Mr. Demetris Christofias, with your decision on October 26, 2011 regarding the Greek debt haircut, the well known PSI, created a loss of around €2.5 billion for Popular and a total loss of over €4.0 billion for the Cypriot banking system. The Popular Bank would not have needed capital if you had not agreed with the European decision in October and the damages it entailed Mr. Demetris Christofias.

‘The least I would have expected from the president after such a decision, with the enormous effects on the banking system and the economy, was to explain to his people what he supported during the summits, why he supported it, and what position he eventually took.

‘I am not in a position to know exactly what expediency led you to consent to the decision for the Greek haircut. It must however become clear: If you had not supported this decision or if you had asked protection for the Cypriot banks, which you could have done and you should have insisted on, the Popular Bank today would not have faced any insurmountable problem. And shareholders of Cypriot banks would not have lost over €4.0 billion of their investment.

‘You personally Mr. Demetris Christofias, as the leader of our state, had a right, reason, and obligation to defend your country when the decision for a haircut was taken in Brussels.

‘You chose not to. I cannot know the reasons. But I know that if you considered the millions in losses for the banking system a necessary evil, you could have asked for offsetting measures at the same time. But you also failed to do this. Why Mr. President?’