By Giorgos Ioannidou
A year ago Finance Minister Harris Georgiades was gloating about Cyprus’ success in turning around the economy and reducing budget deficits to surpluses. He was so proud that he was tempted to consider reimbursing the bailed in depositors of Laiki from future surpluses. Hubris or ignorance?
Previously, he had achieved some reform of public finances and also set up a Public Fiscal Council to ensure fiscal prudence. All the members were his appointees to make sure they spoke with one voice on the need for prudence. He seemed so sure that he could successfully steer the economy that he must have either put too much trust in his appointees in various banks and the central bank or he took his eye off the ball.
It may be they did not see the storm that was coming with the Cyprus Co-op Bank (CCB), or if they did, they did not voice their fears publicly to keep their jobs. But it is hard to find any excuses as the NPLs across the banking system were always on the agenda with the European Central Bank (ECB) and the rating agencies. Additional provisions and capital were going to be on the agenda sooner rather than later, and yet it took the minister four years and millions paid to advisers to act.
So what really did happen for the finance minister to swallow his pride and bail out the co-op yet again? Was he not the minister who proclaimed that the injection of €175 million of extra equity in December 2015 – after the €1.5 billion in 2014 was not enough – was to be the last support for the CCB? In approving the extra equity injection in December 2015 the EU justified its action by arguing that the bank had not made sufficient provisions compared to the size of its defaulted loans portfolio. The ECB said the bank’s complex structure and the lengthy process to list its shares on the stock exchange meant the co-op was in no position to raise the required €175 million from private investors.
Was Georgiades not the minister who was very generous with other people’s money and wanted to offer shares in the co-op for free. Admittedly, this was a cabinet decision, but it seems they did not read Cyprus’ MoU agreement with the troika after the original €1.5bn was approved, namely, the provision which said the co-op must be sold at the highest possible price when it was privatised.
Was he not the minister who pushed the management of the co op to proceed with a share listing and sell of part of it as if there was any value in the bank? What was the true cost to the tax payer of all these efforts to rid himself of the co-op? How much management time did it all take when that time should have been devoted exclusively to reducing the risk on the balance sheet?
The minister’s recourse to provide a deposit of €2.5 billion – as if the ministry were the ECB offering emergency liquidity assistance with NPLs, the co-op shareholdings in some local firms and land in the north as collateral – is because the ECB would not have accepted NPLs of primary residences with little scope for recovery, unlisted shareholdings of little value and land in the north valued at a guess estimate, as adequate and eligible collateral.
This may explain why the Central Bank of Cyprus, a member of the Eurosystem, did not provide the liquidity assistance. As the minister was hoping that his prudent fiscal policy was to be rewarded with an investment grade rating, he has now abandoned the advice of the Fiscal Council which he set up. By the way, why are they not heard from anymore?
The minister assumed that by appointing his underlings/friends to the Hellenic Bank, the central bank and the CCB he was in control of developments. Little did he seem to understand that the risk on the balance sheets could not disappear with growth linked to tourism and passport sales. As for the central bank, it has been noticeable by its lack of comment on the co-op.
This is the extent of his failure five years after the crisis and after the government stepped in to bail out the co-op for the third time.
For all the public relations, the figures of economic growth are not broadly based and given that the reforms and privatisation have become hostage to unions and politics, he has missed the biggest opportunity to change the direction of the economic model. He has now been spending time bailing out a bank at which he, as minister, called the shots and yet he could not maintain the restructuring in the right direction. In the process, it has cost the tax payer millions.
He should at least have the decency to resign and accept responsibility for his failings. His legacy instead of being one that rid Cyprus of old bad practices will be the one that perpetuated the practices politicians of all colours have followed: nepotism and incompetence.
He got rid of the Troika when he should have kept them on to ensure the reform programme was completed. But we know only too well that oversight from officials who know better than his underlings and mandarins would have curbed his boasts of an economic success story.