* President says bailout will bring pain; Banks, regulator were reckless to Greek exposure *
The president of Cyprus has once again lashed out at the island’s once-flourishing banking sector, telling a nationwide televised address that banks were to blame for all the problems in the economy.
Avoiding apportioning any of the blame on a runaway public sector deficit, due to an expensive and inefficient civil service, Demetris Christofias continued to ride a popular campaign that is causing greater harm than good to the banking sector that is trying to recover from an exposure to Greek debt.
He warned islanders of fiscal pain ahead under an international bailout he said could have been avoided but for profligate banks and an ineffective regulator.
Cyprus, the euro zone's smallest economy after Malta, has reached a preliminary deal with the IMF and the EU to borrow up to 17.5 bln euros ($22.90 bln) – almost equivalent to the country's entire annual output.
Christofias 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.
"We took the decisions we did with heartfelt pain," Christofias said in a televised public address.
The president secured a multi-billion loan from Russia at a high rate, but failed to get a second loan that would pay government wages until the presidential elections in February.
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."
Christofias, a communist who was once Cyprus's most popular politician, has taken the brunt of public discontent at perceived botched handling of the economic crisis on an island which prided itself for pulling through post-war turmoil in 1974.
He is not seeking a second term in an election scheduled in February, and his AKEL communist party is trailing in opinion polls.
A preliminary deal between Cyprus and lenders has set 10 bln euros 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 6.0 bln euros in maturing debt, and will also require 1.5 bln euros to plug deficits until then, finance ministry sources say.
On the behest of inspector from the Troika of international lenders, authorities have pledged to cut salaries in the public sector by between 6.5% and 12.5%, suspend wage indexation, introduce pension reform and extend retirement ages, introduce new tax calculation methods for real estate and incrementally increase taxes like VAT.
"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.
He refuses to discuss the privatisation of profitable government services and utilities and hopes his administration’s last few days will be marked with increased revenues from potential offshore gasfields that are not expected to produce natural gas any time before 2018.
Christofias has repeatedly blamed lax supervision by the former administration of the 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."
His government was widely blamed for the botched handling of Iranian munitions headed for Syria and confiscated by Cyprus, that exploded in the summer of 2011, killing 13 navy and rescue workers, while destroying the island’s main power station, costing the economy about 1 bln euros in repairs and imported energy.
