PRESIDENT Anastasiades’ decision to send a letter to the heads of the IMF, ECB and the European Commission, appealing to them to change the terms of the MoU in order to save the Bank of Cyprus was the correct one. It was a desperate move, but the bank is in a desperate situation and it is increasingly looking like it would not be able to survive the lifting of the capital controls which the government believes are stifling business activity.
As the president noted in his letter, the capital controls might ensure against the bankruptcy of the Bank of Cyprus in the short term, but in the medium- to long-term they would cause the collapse of the banking system, given the systemic importance of the bank to the economy. If the bailout programme was to succeed, it was essential that the Bank of Cyprus was strong and trustworthy, he wrote and nobody could disagree with him.
It was a well-argued letter, pointing out how the Eurogroup decision, which burdened the bank with Laiki’s €9bn ELA debt, while depriving it of Laiki’s assets in Greece that were being used as collateral for part of the amount, had all but eliminated its chances of survival in an open market. He even suggested ways of freeing the bank of the ELA handicap, even though it is questionable how practical these were.
While the president made all the right points, the letter should never have been made public. In fact, it should have been marked ‘classified’, instead of it being distributed, quite foolishly, to all the party leaders, one of whom was certain to leak it to the media, forcing the government to publicly confirm its existence. The acting spokesman and finance minister declined to reveal its contents, which were subsequently posted on several web-sites.
Now, the whole world knows that if the troika declines to make any of the proposed changes to the terms of the MoU, sought by Anastasiades, the banking sector would collapse, even if the capital controls were kept in place indefinitely, in order to protect the Bank of Cyprus from a bank run. This is not the view of some alarmist, financial journalist seeking attention, but of the President of the Republic, who has a responsibility to reassure the public rather than say things that could spark a bank run.
Furthermore, sending a letter to the members of the troika is not enough. Direct personal contact should also be made and the government’s arguments supported by an analysis of figures and the impact on a failing economy (it might also have been a good idea not to have threatened to sue the president of the ECB whose help we are seeking). It is truly demoralising to see such a critically important issue handled so haphazardly.