FORMER Central Bank Governor Panicos Demetriades on Saturday responded to a story run by the New York Times saying that he had downplayed concerns raised over the granting of some €9bn in emergency liquidity assistance (ELA) to now-defunct Laiki Bank- by saying that his actions saved the bank and the whole of Cyprus’ economy by extension.
In a statement, Demetriades defended his actions while at the helm of the Central Bank, noting that if he cut the money flow to Laiki Bank before the bailout memorandum negotiations were concluded, “the bank would collapse and the state, being unable to compensate depositors, would declare bankruptcy.”
The former CBC governor added that if Laiki Bank was left to collapse, people wouldn’t have been able to access their deposits while debtors would have had to pay off their loans immediately. “Dissolving a systemic bank would lead to the collapse of the country’s whole banking sector, with devastating effects for Cyprus,” he said.
Demetriades pointed out that in the first agreement the government drafted with the Eurogroup –which, he added, was rejected by the House – included a provision asking for Laiki’s full recapitalisation.
The New York Times story cited European Central Bank governing council minutes, where German central banker Jens Weidmann was quoted as saying: “It was not the governing council’s job to keep afloat banks that were awaiting recapitalisation and were not currently solvent,” following the mounting of an ELA lifeline.
Demetriades refused to comment, saying that the Times had cited classified ECB documents.