There was an abundance of stories in the media on Friday lamenting the last day of the co-ops and informing us that this was the “end of an era”. From Saturday, there was no Co-operative Central Bank (CCB), its healthy business having been taken over by Hellenic Bank and its toxic portfolio staying with its subsidiary that will be controlled by the state and have the task of recovering a part of the €6 billion of bad debts that sunk the bank.
Friday brought to a close more than 100 years of history which started at the beginning of the 20th century with the establishment of savings funds. By 1930 there were 326 co-operative companies in Cyprus and these more than doubled by the end of the 1950s when co-op membership reached 100,000. The members almost tripled by the early ‘70s, reaching 267,000. In 2002 there were close to 400,000 members, but by then the rot had set in.
The co-op movement was the big success story of the first half of the 20th century helping the slow development of the impoverished rural areas, protecting the poor farming population as well as craftsmen from the loan sharks by providing loans for equipment, fertilisers etc. Co-op grocery stores sold goods on credit until workers received their wages, while co-op companies helped farmers market citrus fruit and grapes. The co-ops made a significant contribution to the rural areas and empowered the downtrodden farmers.
By the 1980s things had changed for good. The once mighty director of the co-ops was in prison for corruption, while the political parties decided to follow the example of Akel and jump on the co-op bandwagon. The toxic influence of the parties spread as they tried to recruit followers from among the members by turning a blind eye to corruption, incompetence, bad practices and gross mismanagement.
It is no coincidence that the general manager of the Co-operative Central Bank, who was forced to step down in 2013 and earlier this year appeared in court facing 19 charges, including conspiracy to defraud and money laundering, was a party man that held his post for close to three decades. This man was supervising the co-ops and when the EU recommended that the co-op credit institutions were placed under the supervision of the central bank, he led the fight against it, with the full backing of the parties.
The co-ops had become dens of corruption and mismanagement, doing nothing about the non-repayment of loans, granting loans secured by worthless collateral, approving big loans to sham businesses etc. These disastrous decisions became standard practice because the political parties were covering for each other’s supporters and ensuring nobody would find out. There was no supervision, after all. Was it any coincidence that one of the biggest co-op banks – Spe Strovolos – had more than 70 per cent NPLs? Its boss appeared in court with the general manager of the Co-op Central Bank on the same charges.
In 2013 when the Troika arrived the deep problems facing the co-ops became evident. The co-ops were saved by an injection of €1.7 billion and taken over by the state, which eventually merged them into the CCB, but to no avail. Despite several more billions being poured in – some €7 billion so far – bankruptcy was not avoided. When the government belatedly decided to cut its losses and give away the healthy part of the CCB to Hellenic Bank (it even agreed to cover future losses) the political parties started baying for blood, demanding that the attorney-general order a criminal investigation to establish the causes of the collapse.
Demanding the punishment of the culprits was a predictable diversionary ploy to hide their big share of the responsibility for the crash of the co-ops. These were the same politicians that had become accessories to the plundering of the co-ops, while praising them for being “banking with a human face” and following “human-centric” policies. They were, in effect, publicly condoning the endemic corruption and mismanagement.
The Anastasiades government made colossal errors of judgement in handling the CCB once it came under state ownership and the €7 billion bill that will be picked up by the taxpayer is emphatic proof of this. Figures do not lie, even though the blame-game is rampant. Opposition parties blame the finance minister for appointing an unsuitable CEO to save the bank and they have a point; the auditor-general blames the finance minister for preventing him from carrying out an audit of the bank; members of the board blame the ECB for wanting to end state ownership as soon as possible; the CCB top management blames the structural problems that could not be fixed; the government blames the sins of the past.
Everyone has a point, but the seeds of the co-op disaster were sowed long before 2013 by the political establishment, which has a knack of destroying anything it meddles in.
Once the parties gained access to the co-ops there was only ever going to be one outcome.