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Georgiades recounts dark days of March 2013 banking crisis

Finance Minister Harris Georgiades
Finance Minister Harris Georgiades

A speech by Finance Minister Harris Georgiades late Tuesday revealed for the first time how the government was grasping at straws to keep the economy afloat in March 2013, on the eve of the banking haircut.

Georgiades, who is expected to step down by the end of the year, and was the minister of labour at the time said that on March 15, the night before the news broke,  he was at the theatre with his wife, went for dinner, went home, put his phone on silent and went to sleep before all hell broke loose.

“These were the first days of the new Anastasiades government and though it was, of course, aware of the serious difficulties in the economy, I don’t think there were many who realised until that moment the full extent of the crisis to follow,” he said.

He said the ‘notorious’ Eurogroup meeting on Cyprus was underway that night of March 15 but as labour minister he had no involvement.

“It was the last night before the absolute storm. When dawn came and I took the cellphone in my hands, I found missed calls and a series of dramatic messages from Brussels. “We’re probably coming out of the euro,” said a message from Constantinos Petrides, who is now the interior minister.

“We had now entered the climax of the economic crisis that had started in 2009 when our economy faced the first cycle of recession and which had its roots even further back, in senseless credit expansion, and as a consequence, the bubble created in the real estate, but also in their senseless management of public finances.”

Georgiades then related a series of incidents that followed one in particular just after the House met to “solemnly reject” the first across-the-board haircut, which in hindsight would have proved less devastating than the one that followed.

He said he was at his ministry with an associate and a security guard watching the House session when he was informed that the Troika was heading to his office as the minister of finance at the time, Michalis Sarris had gone to Moscow to try and secure a loan but came up empty.

The Troika, he said, informed him that due to the resistance from parliament, it was now inevitable that the situation in the banks was irreversible and neither Laiki nor Bank of Cyprus could operate again and that an even deeper haircut was inevitable. The Troika was accompanied by then Central Bank Governor Panicos Demetriades.

“Of course, I rushed to the presidential palace immediately. What followed was a dramatic three days and what made things even more difficult was the fact that many were still in denial. Many expected the international markets would be shaken after the House decision and that the position of the European Union and the IMF would change. I remember when I got out of the car for a meeting at the presidential palace, I was asked by the journalists who were there, how things were going, and I answered “difficult” in one word. I received a lot of criticism because of this. I undermined the decision of the House and the mind of the people.”

Georgiades said there were others who really believed that some billions would come from some incredible source from abroad. “There was supposed to be an investor sending a few billion,” he said, adding that Hellenic Bank stayed open all night waiting for the transfer.

He said a political leader had approached him on the sidelines of a meeting at the presidential palace and asked him if 15 billion was enough “but in dollars “. This was supposedly to come from a Greek businessman Artemis Sorras, Georgiades said but it never arrived despite the bank staying open all night.

In 2017 Sorras, who claimed he owned $600 billion and pledged to save Greece from its debt, was sentenced to eight years for embezzlement, according to Greek media reports.

“And others, of course, took the position that Cyprus’ exit either from the eurozone or from the EU itself should not be excluded,” he added.

“This scenario, however, with which some obviously flirted, wasn’t at all that far-fetched. We had reached a hair’s breadth from the exit. There were circles in Europe that might have pursued it, circles at home, and others who were so irresponsible in their approaches, almost made it a reality,” Georgiades said.

“I give these references not to gossip, but because I consider them to be indicative of the prevailing climate at that time.”

He said his approach as the time in speaking with the Troika was that at least Bank of Cyprus had to be saved even if it saw a haircut so it would be left feasible to restore normality gradually.

By March 21, the second haircut was approved and he was sent to Brussels to participate in the subsequent Eurogroup meeting “which I will never forget”.

“The worst part was that I found a complete lack of confidence in our country and its credibility; Cyprus was at zero,” said Georgiades who ultimately took over the finance ministry on April 3 that year after Sarris resigned.

“On my first day in the office, the treasurer informed me that the available cash was sufficient for one month. The economy was already in deep recession and unemployment on the rise. Cyprus was actually on a ventilator,” he added.

He said he had a picture in his mind of what needed to be done and also had the backing of President Nicos Anastasiades and a significant free hand. “I emphasised that we had to get back on our feet and restore stability and confidence.  I knew this period would end and we could not go back in time. The damage had been and we needed to look ahead.”

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