• +
• -
• Text size

Follow the mail on Twitter.

Topic tags

Cyprus

Related content

President Christofias has described his relations with former CB governor as 'traumatic'

OPPOSITION parties yesterday accused President Demetris Christofias of irresponsible populism a day after his televised news conference, in which he played down the possible ramifications of Cyprus missing its 2012 deficit target.

“We will fight to reach 2.5 per cent but if we don’t, it would not be the end of the world,” he said, as he pledged that as long as he was president there would be no new measures affecting workers, nor would civil servants’ retirement bonuses and pensions be touched.

Main opposition DISY said Christofias appeared as an indecisive president who cannot govern. 

He is simply waiting for his term to finish, DISY said.

It is an “irresponsible populism leading the country to destruction”, party spokesman Haris Georgiades said. “He presents himself as the defender of workers when during his days unemployment has tripled.

“They (ruling AKEL and Christofias) say they want to safeguard workers’ rights but they don’t understand that if we don’t put measures in place and we go down Greece’s path, the first to pay the price would be the workers,” Georgiades said.

DIKO, who was part of a ruling coalition until August last year, said the president should have acknowledged his mistakes and explain how the country ended up in the state it is.

Spokesman Fotis Fotiou said Cyprus was in a rut because of procrastination, lack of will and vision, and obsession on certain issues, while Christofias tried to justify the unjustifiable.

The Greek-language press also took a stance yesterday, with all papers apart from AKEL’s mouthpiece, Haravghi, running disapproving headlines.

The island’s biggest, Phileleftheros, said Christofias has no recipe to tackle the crisis while Politis run its report under the headline: “I am the state.”

Alithia’s front page said “Demetris Christofias, GLORIFY ME,” adding that he appeared on television as “the one and only”.

Christofias dismissed the “one and only” barb as nonsense, adding that he had expected the broadsides from opposition parties.

“It is typical; it is now a tradition,” he told reporters. “Christofias does not say or do anything good.”

AKEL defended the president, saying he had busted the myths created by DISY and its companions: “that the government is responsible for the difficult position the economy is in and not pressure from the worst capitalist crisis, the accumulated structural problems inherited by the current government as well as the financial sector, whose large exposure to Greece, was the main cause for the Cypriot economy’s downgrades (by ratings agencies).”

The latter view has been expressed repeatedly by government and AKEL officials in recent days, in what some view as a concerted attempt to convince people that the main problem faced by the economy is the banks’ exposure to Greece.

The focus on the banks is viewed as a “political game” to divert attention from the administration’s mismanagement of the economy and failure to put in place the necessary structural reforms.

A look at the figures for the previous five years shows that the economy’s decline started when the Christofias administration came to power in 2008.

In 2007, Cyprus posted a 3.5 per cent surplus - €554 million. The first year of the administration ended with a 0.9 per cent surplus and from then on it was all downhill.

On June 30, 2009, the finance minister at the time, Charilaos Stavrakis, said the government’s aim was to end the year with a 3.0 per cent deficit.

The European Commission predicted a 1.9 per cent shortfall while the International Monetary Fund expected it to be 3.9 per cent.

“At the moment we are monitoring the course of public finances daily,” Stavrakis said at the time. “Indeed there is an inevitable slowdown in revenues; there is expenditure running at a higher rate to stimulate the economy and continue to protect the weaker classes. Nevertheless, our target is to close 2009 with a deficit of around 3.0 per cent and avoid supervision from the European Commission.”

The year closed with a 6.1 per cent deficit. 

The gap created between 2007 and 2009 translates into €1.6 billion.

The deficit dropped to 5.3 per cent in 2010 and jumped to 6.3 per cent in 2011 – also affected by the destruction of the island’s biggest power plant after a munitions blast.

It was only at this point the government decided to take some sort of austerity measures.

All along, Cyprus was being downgraded by ratings agencies, which eventually shut the government out of international markets a year ago.

The government says the downgrades were the result of the banking sector’s exposure to Greece, but the agencies also cited fiscal slippage as a concern and the government’s weakness to support them.

On March 9, 2011, Stavrakis said the authorities were committed to improving the island's economic situation. 

"What is required is to stabilise the situation so there will be no further downgrades, to improve public finances, solve the structural problems of the economy and reduce borrowing costs," he said. "This will calm the (ratings) agencies and foreign investors."

According to former Central Bank governor Athanasios Orphanides, the problem between 2007 and 2009, was created by the excessive rise in spending to the tune of €1.3 billion.

And this rise was not due to increased unemployment benefits since jobless rates had not recorded any notable increase at that time.

“It is due to the increased spending on social transfers, salaries and pensions,” he said during a speech in Larnaca last Wednesday. “Essentially, this was the reason for the worsening of the fiscal deficit by 1.6 billion.”

The downward spiral continued in 2010 and 2011 - between 2008 and 2011, public spending rose by 4.0 per cent per year, while GDP was effectively stagnant.

“As a consequence of this imbalance and the continuous deficit, the country’s public debt rose by €4.3 billion between 2008 and 2011,” the former governor said.

It was a classic mistake made by other countries in the past.

“Supposedly pro-popular policies with unreasonable increases in unproductive spending stifle economic growth, leading to increased unemployment and poverty,” Orphanides said.

The former CB chief said the shutout from the markets raised borrowing costs in Cyprus, hurting growth and employment.

It also exercised tremendous pressure on the banking sector since it significantly increased the cost of financing and raising capital, making lenders susceptible to negative external developments.

“The government’s weakness to refinance its debt raises doubts internationally about its ability to support the banks in case of emergency,” Orphanides said.

It all came to head when European leaders - including Christofias - decided to write-down Greece’s debt, trapping the government and the banks in the vicious circle they are currently in.

The government must now prop up the Popular Bank - the most exposed to Greek debt - and it may have to come up with €1.8 billion it does not have.

The government blames Orphanides for the exposure.

He rejects any blame, and has said that problems could have been averted had Cyprus negotiated better terms for the Greek debt write-down agreed by European leaders in October 2011. 

He told parliament on April 30 that he was rarely consulted by Christofias.

In his speech on Wednesday, Orphanides questioned why Christofias did nothing to protect the island’s banks when he knew of the damage a 75 per cent write-down or haircut, would inflict on Cyprus in particular.

“Why did he support the haircut the way it was done - magnifying the losses of Cypriot banks?” Orphanides said.

The former governor also wondered why Christofias had not asked for Cypriot banks to be recapitalised by the stability fund like their Greek counterparts.

And “why had the government not insisted on our banks to be able to draw funds directly from the European stability fund if necessary so that Cyprus was protected in case the need arose for temporary support, since the government faced difficulties in the markets?”

Commenting on this during Friday’s conference, Christofias seemingly put potential personal cost above the one for Cyprus, which was the only one that would face big problems with the haircut.

“I cannot imagine what would have happened if I said Cyprus is against (the haircut). Therefore, naturally gave my vote too, irrespective of whether I saw the dangers for us.”

Asked about his relation with Orphanides, Christofias said “my experiences with my friend Thanasis were traumatic. No governor of a central bank can impose his will on the executive, elected by the people."