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Dijsselbloem: Cyprus decision was ‘harsh but inevitable’ (updated)

Eurogroup President Jeroen Dijsselbloem in Nicosia yesterday. He said thing could have been a lot different if Cyprus had only asked for bailout a year earlier

By George Psyllides

THE closure of one bank and seizure of deposits in another were harsh but inevitable decisions, Eurogroup President Jeroen Dijsselbloem said yesterday as he pledged support for Cyprus whose economy was expected to recover within a short period, he said.

Dijsselbloem said the Eurogroup fully realised the effect the measures had on the economy and the lives of the people, stressing however, that they were inevitable under the circumstances.

“We stand ready from the Eurogroup to support Cyprus when necessary,” he said after a meeting with President Nicos Anastasiades in Nicosia.

Dijsselbloem’s one day visit comes a year after the decision to shut down Laiki Bank and use large deposits, a process known as bail-in, to recapitalise Bank of Cyprus in exchange for a €10 billion international bailout.

“It was very harsh (the decision),” Dijsselbloem said during a brief news conference following a meeting with Finance Minister Harris Georgiades earlier yesterday. “I fully realise that but it was also inevitable in view of the specific situation in the banking sector in Cyprus.”

Later in the day during a lecture he gave in Nicosia, Dijsselbloem said the economic growth of the financial sector was not built on a sound basis and posed eventual risks to the economy “which should have been dealt with earlier”. He said the bailout programme could have been different if it had been agreed a year earlier “but the decision was postponed and postponed”, he said, without specifically referring to the previous government whose dithering ultimately resulted in the bail-in programme. “We ran out of time. The banks ran out of money and we ran out of manoeuvring space,” said Dijsselbloem.

The European official said he expected the island to recover within a short period of time and no further measures were on the cards.

“I don’t think that there needs to be further steps from the Eurogroup or the eurozone. I think that the programme is being very effective,” he said after his meeting with the finance minister.

Cyprus has successfully passed three evaluations, performing better than expected.

Georgiades said Cyprus was fully committed to restoring the prospects of the Cypriot economy “not to satisfy third parties but to serve the best interests of our country.”

In a closed-door meeting with Dijsselbloem later yesterday, the House Finance Committee asked for EU contribution to help Cyprus tackle the effects of the bail-in on the banking sector.

Ruling DISY MP Prodromos Prodromou said they highlighted the lack of confidence in the banking sector, the economy’s liquidity problem, and the high number of non performing loans.

According to the DISY MP, Dijsselbloem recognised the problems as well as the need to support Cyprus in areas where it has comparative advantages like tourism, shipping, and services.

“We asked for thoughts and suggestions on how Europeans can contribute so that we tackle these problems,” Prodromou said.

Thomas Vizer, Head of the Eurogroup working group suggested that Cyprus should avoid focusing only on the courts to resolve the non performing loans problem, Prodromou said.

Vizer told MPs that mediation procedures should be put in place to help banks and borrowers.

According to AKEL and EDEK MPs, Dijsselbloem told the committee that the government knew about the bail-in before the March 15, 2013 meeting.

AKEL MP Pambos Papageorgiou said the government had been informed about the EU’s intentions and was negotiating with them in the days before the meeting that rubber-stamped the bail-in.

Papageorgiou added however that MPs did not hear anything that would help get Cyprus out of the rut.

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