The government seemed very proud of its decision to pump another €2.5 billion into the Cyprus Cooperative Bank (CCB) last week. The deposit was in the form of 15-year and 20-year government bonds plus €150 million in cash. Faced with the possibility of a bank run that could have led to the collapse of the CCB and had serious repercussions for the banking system, the government was obliged to act. Withdrawals had reached €2 billion and government intervention was the only way to stop them.
While the move was understandable, it is very difficult to accept the positive spin the government put on its decision that pushed the national debt to 110 per cent of GDP. The total amount of taxpayers’ money put into the CCB now stands at €4.2 billion, more than 20 per cent of GDP. There was no such treatment for the depositors of the Bank of Cyprus when the bank needed capital in 2013. Of course, the government argued that it took this action because, in contrast to 2012-2013, it was able to do so. Spokesman Prodromos Prodromou said the state intervened not only to prop up a bank, but to mainly protect deposits and depositors.
“This deposit of big dimensions gives the message to the rest of depositors that they do not have to worry about their deposits and the target of examining investor interest in the bank will be achieved.” He was referring to the invitation of proposals for the buyout of the CCB, which will inevitably lead to the sale of its healthy loans and leave the state with €6.5 billion worth of NPLs. Neither Prodromou nor Finance Minister Harris Georgiades, who was directly handling the matter, mentioned why the CCB was on the brink of collapse and needed to be propped up by the state.
This was the result of the spectacular failure by the government, which has been running the CCB since 2013. The people it appointed to put the state-owned bank on a healthy footing had failed abysmally with the result that the taxpayer has been lumbered with an additional bill of €2.5 billion in order to protect deposits. Was it really a good thing that the government was in position to pump another €2.5 billion into the CCB, as Prodromou boasted? We have our doubts, especially as this squandering of the taxpayer’s money could have been avoided had the government not used its control of the CCB to offer jobs to its political supporters and do favours to debt defaulters.