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Orphanides: if Christofias had only taken five minutes…

Former Central bank Governor Athanasios Orphanides testifies at inquiry

By Staff Reporter

Former Central Bank Governor Athanasios Orphanides told an inquiry on Friday that if former president Demetris Christofias had bothered to take five minutes to listen and act, the economy could have been saved.

Orphanides was testifying at the panel inquiry a day after Christofias had walked out after refusing to answer questions.

The former Central Bank governor said he had warned Christofias in writing on numerous occasions on the economic situation and the need to take measures to reduce public spending but got no response.

“None of the letters I sent Mr. Christofias were answered,” he said.

Orphanides said he did have contact in 2009 with undersecretary to the president Titos Christofides where he said he had tried to explain the need for action.

He had also met with Christofias in 2009 at the latter’s summer home in Kellaki where they had a “long talk’ and he was hopeful he could convince the former president to take action but failed.

“If the former president of the Republic had allocated five minutes this country could have been saved,” he said.

Asked what was the state of the economy when he took over the duties of governor of the Central Bank, Orphanides said the economy was in good shape but there were challenges of a structural nature.

“Everyone knew that pension requirements were unmanageable in 2006 and 2007,” he said.

Orphanides said the downfall of the economy began immediately after the 2008 election of Christofias and his administration.

Orphanides called it a “total reversal in fiscal policy”.

“We started with the Easter bonus in an untargeted way when the country did not need it. There was reckless spending,” he said.

The Central Bank, when the economy began overheating in the spring of 2008, issued strict instructions to the banks with regard to lending “because there were fears of a property bubble.”

But former finance minister Charilaos Stavrakis had asked him not to make any statements that conflicted with or contradicted the policies of the government, Orphanides said.

He added that Stavrakis also asked to sell the gold reserves to strengthen public finances.

“And these unethical interventions continued. I explained that the policy of the CBC was not to serve any government,” he said.
Replying to another question, Orphanides said he had to assess the impact on the banking system in Cyprus from the haircut of Greek debt.

“We could have handled the Greek haircut, a remark I had made in previous statements,” he said.

The former governor also charged that banking sector problems were exaggerated by the former administration to distract from its own mistakes, along with a delay in negotiating aid, Orphanides said

“Even before the end of 2012, AKEL (through the government and the CBC) had already managed to lead our (EU) partners to the conclusion that they would do us a favour if they rid us of the casino banks, as they were described worldwide by our supervising authority,” Orphanides said.

“Unfortunately, even though I hope it does not happen, I am afraid that the result of the coordinated actions against the banking system by the CBC and the AKEL government, is that our country’s economic catastrophe will prove worse than 1974,” Orphanides said.

Orphanides also said on Friday that the eurozone’s debt crisis was far from over, and that a messy bailout for Cyprus had taken the island backwards by at least a generation.

“The eurozone is in an existential crisis,” Orphanides said.

“Markets are currently calm, but I will not hide from you that I am deeply concerned that after the German elections in September we might have a flare-up of the crisis in the eurozone,” said Orphanides, who now teaches macro-economics at the MIT in the United States.

Orphanides, who also sat on the board of the European Central Bank during his Cyprus tenure, said authorities could not legally prevent Cypriot banks from buying bonds in another sovereign since it was a member of the eurozone.

“This is something which still concerns me,” Orphanides said. “Even today, such (sovereign) bonds are considered zero risk, for regulatory reasons. I think that is madness, but that is the reality of the regulatory framework,” he said.

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