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Our View: Government had no choice but to withdraw bill on foreclosures

The IMF was among several world organisations to oppose any changes

The government did the right thing to withdraw the bill amending the law on the courts which had been changed beyond recognition by the political parties. The aim of the bill was to speed up the court procedure for resolving differences between debtors and banks or asset recovery companies, but by the time deputies had finished with their changes it would have become a “a tool for the complete suspension of foreclosures procedures”.

This point was highlighted in an announcement issued jointly by the ministries of finance and justice to explain the withdrawal of the bill, which would have been approved at Thursday’s final session of this parliament. The ministries warned that by amending the foreclosures procedures, the courts law would affect financial stability, “creating capital needs for the banks and endangering the creditworthiness of the Cyprus Republic”.

Deputies had been warned of these big risks for the country by the finance ministry and the Central Bank when the amendments were discussed at the House finance committee. There have also been warnings from the international ratings agencies, the European Commission the ECB and the IMF with regard to the risks that would be posed by the proposed changes. As always, deputies ignored all these warnings because pandering to voters is above everything, especially with elections just weeks away.

Helping a few hundred debtors not repay their loans is certainly more important than the safeguarding of our indebted state that needs access to the markets to keep the economy working during the pandemic. Deputies have made no secret of their intentions. Solidarity’ had the audacity to criticise the government’s withdrawal of the bill, the changes to which was “to improve the quality of the law and give the capability for access to justice to operate in favour of debtors and not to ensure express foreclosures”. The parties wanted to “help our beleaguered, indebted compatriots who are trapped in the nets of credit-buying companies and the banks”.

The reasoning is quite incredible. Deputies are prepared to put the economy at huge risk so that people refusing to repay their debts can carry on doing so with impunity. All the people who have been honouring the debt obligations will be penalised so irresponsible parties can pose as the protectors of the defaulters. The ministries are not exaggerating the risks of rendering the foreclosures law a dead letter through the amendments. This would lead to recapitalisation needs for the banks (as they would be unable to recover loans) while the state’s credit rating would plummet. We would relive the 2012 scenario again.

The government may have saved the economy by withdrawing the bill, even though opposition parties could still try to find an alternative way for amending the foreclosures law in the final session. We can only hope they will not have the time.

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