EU, Cyprus leaders to blame for crisis, Greek haircut “was wrong”

The only regret that outgoing central bank chief Athanasios Orphanides had during his five year term that ended Wednesday was that he could not convince the president of Cyprus and his advisors of the worsening economic situation from 2008 to 2011 and the need for corrective fiscal measures.
Speaking during a press briefing to present the central bank’s report for 2011, Orphanides said that the situation was critical for Cyprus, but that close cooperation with the last two finance ministers was producing results. Prior to that, Orphanides had a tense relationship with former finance ministers, the president and the ruling communist party Akel.
“It is imperative to increase and intensify the reforms,” in order to tackle the worsening public finances, he said, which was the main reason that Cyprus was shut out of the capital markets a year ago.
Responding to comments by President Demetris Christofias that he was to blame for the economic crisis and for not preventing Cypriot banks’ exposure to Greek government bonds, Orphanides tried to put an end to the public tit-for-tat by saying that “when we are facing a problem, we should try to resolve that problem,” and not find someone to blame.
However, he was critical of all the European Union leaders, including Cyprus’ Christofias, who initially wanted a “less than 21%” haircut of Greek debt last July, but raised the writedowns to 50% in October, “which in reality meant a 75-80% haircut”.
“This was a political decision to which I was opposed,” Orphanides said, explaining that the haircut caused great losses to the Cypriot banks, which he believed were aptly capitalised before the haircut in order to overcome the crisis.
“It [the haircut] was not done the right way and many mistakes were made on how this decision was taken,” he said,
On Monday, the career centralbanker told MPs that he was ignored by the president and disagreed with a Greek debt writedown which inflicted massive losses on bond holding Cypriot banks, forcing a rush to recapitalise them by a mid-year deadline.
He also said he had faced repeated challenges to his authority as an independent official.
Repeated attempts to convey this view to President Christofias failed, he said. Highlighting his own lack of communication, he said his counterparts at the ECB were in 'daily contact' with their national leaders.
Asked what he would have done differently to what Christofias actually did, Orphanides replied: "The minimum I would have demanded to agree with the haircut – and every country has the right to protect itself – is that banks have the ability to draw support from the EFSF, instead of through the state."
"It is with great sadness that I have to say the president never asked for my view, and I had repeatedly asked for meetings with him," he said.
He is being succeeded by Panicos Demetriades, a professor of financial economics at the University of Leicester in Britain. The two will appear together in a brief handover ceremony on Monday.