Cyprus Mail

Sarris says BlackRock data could hardly have averted bail-in

Michalis Sarris

Former finance minister Michael Sarris said Cyprus might not have averted the decision to bail-in depositors in 2013 even if the ministry knew about a confidential report commissioned by the Central Bank of Cyprus, which allegedly estimated lower capital needs for banks.

“What matters is that our public debt in 2008 was €8bn (and) in 2012, it was €16bn, or 86 per cent (of gross domestic product),” Sarris, who served as minister in March 2013, told state radio CyBC on Friday, days after former central banker Athanasios Orphanides alleged that the supervisory authority withheld the report which led to a loss of €8bn in deposits.

Cyprus’s high public debt compared to gross domestic product made any borrowing to rescue banks prohibitive as it would have made it unsustainable, the former finance minister, who also served under President Tassos Papadopoulos from 2005 until 2008 and oversaw the adoption of the euro, said. He added that if the Demetris Christofias government had raised public debt by €2bn only, it would have remained “below the critical point to be considered sustainable.”

Athanasios OrphanidesFormer governor Orphanides, who now teaches at the Massachusetts Institute of Technology, told lawmakers of the House Ethics Committee on Tuesday that former president Christofias, a communist, and the Central Bank, under former governor Panicos Demetriades, intentionally inflated capital requirement figures to convince the public that banks were responsible for the financial crisis. In October 2011, Christofias agreed at a European summit to a debt relief for Greece which wiped out €4.5bn from the Cypriot banks’capital.

According to a document obtained by the Cyprus Business Mail dated January 20, 2013, Vilmos Pongracz, a BlackRock executive, told Central Bank official Argyro Procopiou that he had doubts about the “projected defaults” included in a report prepared by PIMCO, which the central bank hired in September 2012.

The Central Bank hired BlackRock to verify the capital requirements of Cypriot banks, which PIMCO estimated at €8.8bn. According to a March 2014 report authored by academic Stavros Zenios, BlackRock’s estimate was €1bn lower.

Sarris who also served as chairman of Cyprus Popular Bank, or Laiki, between January and August 2012, said that he had not received a copy of the BlackRock report.

“There was a serious shortfall at the banks, which had to be filled one way or another,” he said. “The decision that was ultimately taken was this disastrous one,” he said in reference to the eurogroup decision to bail in depositors, adding that a previous proposal to tax deposits would have averted the seizure of deposits.

Panicos Demetriades probeOrphanides’s comments also triggered the reaction of his successor, Demetriades, who teaches at the Leicester University. In comments published by Phileleftheros, Demetriades described his predecessor’s allegations as “a desperate attempt to shift the responsibility for the lax supervision during his term” in which he allowed banks to assume excessive risks.

Former central bank official Spyros Stavrinakis, who is listed as one of the co-recipients in the reported email exchange between BlackRock and the Central Bank, and was subsequently appointed by Christofias as deputy governor, told Phileleftheros that the Central Bank did not withhold any data from the finance ministry officials sitting in a steering committee, and that there was “very close cooperation” with Sarris and his predecessor at the ministry Vassos Shiarly.

One of the two finance ministry officials who sat in the steering committee contradicted Stavrinakis’s account.

He told the Cyprus Business Mail last year that he and his colleague did not receive the BlackRock report “even though we asked for them”.

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