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President Demetris Christofias

PRESIDENT Demetris Christofias last night made it clear there was no going back on the bailout deal and its contents, which he warned would be painful.

In a televised address to the nation, Christofias called for unity and responsible action from all to “overcome the difficulties” brought about by Cyprus’ recourse to the European Stability Mechanism. 

Cyprus has reached a preliminary deal with the IMF and the EU to borrow up to €17.5 billion - almost equivalent to the country's entire annual output.

Christofias, dressed in a dark suit and red tie, flanked by the flags of Cyprus and the EU, said Cyprus had no choice but to turn to outsiders for help after its largest banks took huge losses on exposure to debt-crippled Greece and looked to the state for aid. The collapse of one of the big banks would have led the country to bankruptcy, he said. 

“I am the last person who will attempt to idealise this memorandum and attempt to whitewash things ... there are many measures which are truly painful, and measures which, under other circumstances I would not even discuss,” Christofias said.

However, he asked, what would happen if the banking system collapsed and the country was destroyed. 

This was not the time for populism, nor for personal interests and ambitions, or petty political and electoral considerations, he argued.

“These moments demand maximum unity. We should not forget that nothing is finished as yet,” he said, noting the difficult issues of determining the amount necessary for the recapitalisation of the banks and the procedures still to go through in the EU and among member states.

“It is for this reason that we must all act responsibly and seriously. This is why we should all raise ourselves to the challenge - political parties, organised groups and the media- so as not to cause more difficulties or give the chance to those who want to harm our country to succeed.”

He called for “hard work and sacrifice” to “bring into effect another economic miracle” like the one witnessed after the 1974 Turkish invasion. 

“We took the decisions we did with heartfelt pain,” Christofias said, arguing that the government exhausted all other options before requesting help from the so-called troika of international lenders.

“Many citizens are asking themselves: why should we pay for the criminal mistakes, oversights, perhaps even the abuses of some senior bankers or why do we have to pay for the inadequate supervision of the banking system by the Central Bank and the former governor?” he said, in reference to Athanasios Orphanides. 

Looking sombre in the pre-recorded speech and appealing for public unity, he said: “Decisions of the banks, and inadequate supervision by the central bank, are costing Cyprus many billions of euros.”

The president referred specifically to the €4 billion losses incurred by the Cypriot banks due to their exposure to Greek bonds, and another equal amount which Christofias argued was caused by Orphanides approving the transformation of Marfin Egnatia bank from a subsidiary in Greece to a Cypriot bank, as well as losses from bad loans to the Greek market. 

Christofias called for investigations into the banking system to be “vigorously pursued to the end”, blame apportioned and the culprits punished. 

The president said he will personally do everything in his power “to see that truth and justice will prevail”.  

Regarding negotiations with the troika, the head of state said the government negotiated “hard” over four months to achieve their core objectives under “difficult circumstances”. 

“On the one hand we had to deal with the constant undermining of our country with defamatory attacks in the international press. On the other hand, domestically, we had to face continuous pressure to sign a memorandum in haste. We had to deal with speculation whether or not the President would sign and the constant reference to the risk of default and the collapse of our banking system.” 

Christofias even heard “from the lips of the most senior people in the EU” of rumours going around that his ministers wanted to sign a memorandum but he did not. 

Throughout his time in office, the president has often bemoaned the lack of domestic unity and chastised his critics for not getting on board. However, yesterday’s address remained relatively subdued, with Christofias restricting his comments to saying only that the atmosphere created served “to deflect attention from the essence and weakened our negotiating position vis-a-vis the troika”.

He added that now was not the time to judge these actions, now was the time for “absolute unity”.

On the actual negotiations, the president listed the areas where the government achieved its aims. 

He referred specifically to hydrocarbon explorations, saying that the state retains sovereignty over the decision-making process on how it will proceed and what it will do with the revenue, though “naturally, a portion of the proceeds will be used to repay the debt”. 

The government also avoided the privatisation of profitable semi-government organisations and the elimination of wage indexation and 13th salaries. 

It convinced the troika to introduce scaled contributions of salaried employees based on income-levels and saved the Cooperative movement. 

A preliminary deal between Cyprus and lenders has set €10 billion in aid to banks, but this is provisional pending an interim assessment by external consultants expected by December 7.

In addition, Cyprus will over the four years to 2016 have to reschedule an estimated €6 billion in maturing debt, and will also require €1.5 billion to plug deficits until then, finance ministry sources told Reuters.

Authorities have pledged to cut salaries in the public sector by between 6.5 percent and 12.5 percent, suspend wage indexation, introduce pension reform and extend retirement ages, introduce new tax calculation methods for real estate and incrementally increase taxes like VAT.

Christofias has repeatedly blamed lax supervision by the former administration of Cyprus's central bank and reckless expansion into Greece by the banks themselves for the mess the economy is in.

The former regulator, Athanasios Orphanides, denies the accusation. He has said Christofias failed to heed repeated warnings about fiscal slippage and bore some responsibility for the banks taking a hit when EU leaders decided to write down Greek bond values in late 2011.

Christofias did not refer specifically to this decision in his speech. “We have never claimed infallibility,” he said. “This however cannot be an excuse for blaming everything on the president and the government.” 

(Additional reporting by Reuters)