By George Psyllides
President Nicos Anastasiades said on Tuesday that not accepting the terms of a bailout would have been catastrophic for Cyprus as he denied proposing the seizure of insured bank deposits.
Speaking before a committee of inquiry into the island’s economic collapse, Anastasiades conceded he reneged on his pledges not to accept a ‘haircut’ on deposits, stressing that the alternative would have been catastrophic for Cyprus.
“I opted to be useful instead of likable,” Anastasiades said.
The president was referring to the first Eurogroup, March 14-15, which decided that bank deposits – insured and uninsured — should be seized to recapitalise the island’s banks.
“The truth is that anything proposed was done on the initiative of the Eurogroup directorate and adopted by the majority of the members,” Anastasiades said.
That Eurogroup meeting decided to write-down deposits under €100,000 by 6.7 per cent and those over €100,000 by 9.9 per cent in all banks.
Even if the Cypriot government had suggested the haircut of insured deposits, “since they claimed it was illegal, why did they accept it?” the president said.
The proposal was eventually rejected by parliament, as Anastasiades had warned could happen.
Ten days later, the Eurogroup withdrew the proposal and decided to close the island’s second-biggest bank, Laiki, and seize a big chunk of uninsured deposits in the Bank of Cyprus.
Banks remained closed during the ten days between the first and second Eurogroup meetings to prevent a bank run.
According to a statement that Anastasiades submitted to the committee, the closure worsened the uncertainty and compounded the economy’s problems “unfortunately confirming the concerns I expressed after the first Eurogroup decision.”
“Imports froze while supplies were running out and thousands of businesses could not function. Many started suspending their operation,” Anastasiades said.
In the 10 days between the first and second Eurogroup meetings, the government held meetings with parties, banks, unions, legal experts, and others in a bid to find a way to tackle the effects of the failure to strike a bailout deal but also come up with alternative proposals to achieve a deal.
As the situation worsened, international lenders suggested that the only possible solution was to resolve both systemic banks – Laiki and Bank of Cyprus.
On March 21, the Central Bank informed the government and party leaderships that Laiki would collapse in the next few hours as it had run out of liquidity.
Despite the closure, bank branches overseas were still open while people could withdraw the maximum allowed amount from ATMs.
Anastasiades said not accepting the haircut would have led to the collapse of the economy.
The island’s banks would have collapsed because the European Central Bank (ECB) would have stopped providing them with emergency liquidity (ELA), Anastasiades said
The state would then have to cover insured bank deposits worth €19.7 billion, €11 billion in ELA owed to the ECB, and around €5.8 billion in government debt – some €36 billion in total, the committee heard.
Inevitably, this would have led to a disorderly default and exiting the eurozone, coupled with currency devaluation, the president said.
He also feared an EU exit, he added.
Towards the end of his testimony, Anstasiades sought to respond to suggestions that he had warned relatives of the haircut so that they could remove their money.
He was interrupted by committee chairman Giorgos Pikis who stressed that that aspect was not under investigation based on inquiry’s terms of reference.
Nevertheless, Anastasiades managed to say that he had never given anyone any information.
Following the Eurogroup decisions, Haravghi, the mouthpiece of former ruling party AKEL, reported that a company belonging to Anastasiades’ daughter’s parents-in-law, A. Loutsios and Sons Ltd, had transferred some €21 million from its bank accounts in Laiki just days before the decision to raid deposits.
The Loutsios family denied the claims, describing the report as a “malicious” and deliberate effort to politicise fully legal economic activities having nothing to do with the newspaper’s allegations.
The family said it had transferred €10.5 million from Laiki to the Bank of Cyprus – in Cyprus – and an additional €10.5 million was transferred to Barclays PLC in London.
It said the reasons for the transfers were to pay for the acquisition of two properties in Greece – €1.1 million plus €400,000 for renovations – and to cover a €6.5 million bid made by the family for property belonging to the Greek government in Cyprus.
Anastasiades was the last witness on the committee’s list.