Cyprus Mail

MPs want state to sue ECB’s Draghi

By Elias Hazou

LAWMAKERS want the state to sue the European Central Bank and perhaps even ECB chief Mario Draghi personally for authorising the transfer of billions in emergency liquidity to prop up Laiki despite the fact the bank was – to all intents and purposes – broke.

Emergency Liquidity Assistance (ELA) is liquidity provided to a eurozone commercial bank in a financial crisis by its national central bank. It is meant to be used to overcome a temporary liquidity crisis, where a bank has assets but cannot access them quickly enough to meet liabilities, such as cash withdrawals.

In order to be eligible for ELA, a bank must meet two conditions: to have adequate collateral, and to be solvent.

The ECB’s implicit argument appears to be that, post-May 2012, Laiki was illiquid but not insolvent.

But as some commentators have pointed out, in a financial crisis the line between liquidity and solvency can become blurred.

When in May 2012 the state underwrote €1.8bn to float stricken Laiki, the lender was already neck-deep in ELA to the tune of €3.8bn due to a steady outflow of deposits since the summer of 2011.

In July of 2012 Cyprus’ sovereign debt was rated junk, meaning it could not be held as collateral for underwriting the bank, and at that point Laiki was technically insolvent.
By the time the decision to wind down Laiki was taken, the bank’s ELA had mushroomed to around €9bn. The entire amount, having been guaranteed by the Cyprus government, has since been lumped onto the balance sheet of struggling Bank of Cyprus (BoC).

Led by DISY’s Averof Neophytou, MPs now say the ECB breached its own regulations in allowing the continued provision of emergency liquidity to Laiki, which has ultimately hurt the Cyprus economy.

Speaking at the House Finance Committee yesterday, Neophytou proposed that the Republic of Cyprus ought to sue the ECB and possibly Mario Draghi.

“Otherwise, we’re losers,” Neophytou remarked to his colleagues.

It’s understood the MPs intend for Cyprus to bring the matter up with the European Court of Justice.

The Greens’ George Perdikis was more militant. He told newsmen that he has sent the President a report, compiled by financial experts, detailing “irregularities” committed by both the ECB and Draghi, and urging the President to take action.

The legislators’ move may also be seen as a retaliation against Draghi. Last week the ECB chief wrote to parliament, criticising plans to alter the governance of the Central Bank of Cyprus (CBC).

In his letter, Draghi challenged a draft law which he said threatened the independence of the governor of the Central Bank.

Also yesterday, the House Finance Committee discussed the practice of donating cars to state officials. Around 50 officials are entitled to cars paid for by the taxpayer, including the

Attorney-general, the Auditor-general, the Accountant-general, ministry permanent secretaries, some departmental bosses and commissioners.

Former Presidents and former House Speakers are also entitled to a free car.

But DIKO’s Nicholas Papadopoulos said that the list of 51 officials – handed earlier to parliamentarians – is incomplete as it did not include local administration, the army and the police.
Parties are trying to work out a formula depriving some officials of the perk and introducing restrictions as to the engine capacity of the cars. Six legislative proposals have been drafted so far.

Some MPs, like DISY’s Neophytou, say that the proposed changes should not go too far, for example by having retroactive effect and thus stripping former Presidents of their cars.

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