Tuesday’s appearance of the former Governor of the Central Bank (CBC) Athanasios Orphanides at the House ethics committee did not shed any new light on the causes of the collapse of the economy. Orphanides repeated the views and theories he had been uttering for the last three-and-a-half years and which feature in his recently-published book.
In a nutshell, he said that the Christofias government together with Orphanides’ successor Panicos Demetriades, had grossly exaggerated the capital needs of the Cypriot banks – they had allegedly given instructions to the consultants of PIMCO, brought in to determine the banks’ re-capitalisation needs, to inflate the figures – so that AKEL could blame the collapse of the economy exclusively on the banks. These inflated figures made the haircut of deposits inevitable, said Orphanides, who also alleged that the PIMCO report had been kept from the government by Demetriades.
He also claimed that AKEL and Demetriades had started planning the inflating of the banks’ capital needs as early as June 2012, citing a leak to the press alleging the needs would be in the region of €10 billion. This conspiracy theory, which also alleged that the sale of the Cypriot banks’ operations in Greece to Bank of Piraeus was planned well in advance, has one major flaw – it is based on the assumption that a grossly incompetent and clueless government and a governor totally out of his depth were capable of orchestrating such a well-executed plan.
There is no doubt that the Christofias government bears the largest share of the responsibility for the collapse of the economy. Its obdurate refusal to take corrective measures when it was obvious the state would run out of money made a bad situation much worse. At the same time, Orphanides has a nerve taking the moral high ground and blaming everything that went wrong on the government.
The Cypriot banks were in big trouble when he stepped down as governor at the end of April 2012, and this was not because of the AKEL government. The banks were not in perfect health when he stepped down and he had already sanctioned €3.8 billion in ELA for Laiki. Less than two months after he stepped down the state had to buy Laiki to prevent its collapse. The bank’s problems did not automatically appear when Orphanides was replaced. It was also Orphanides who gave the go-ahead for the Bank of Cyprus’ disastrous investment in the Russian bank Uniastrum.
Perhaps if Orphanides, now a professor at the prestigious MIT in the US, admitted committing the odd mistake when he was in charge of supervising the Cypriot banks, his theories would have more credibility. However, he seems to be playing a similar game to AKEL – avoiding taking any responsibility for the collapse of the banking sector by putting all the blame on the AKEL government.