The parliament of Cyprus could table a motion to sack the island’s central bank chief, saying he is mostly to blame for the harsh terms imposed by the Eurogroup of euro zone finance ministers as part of a 10 bln euro bailout that has brought the banking sector to its knees.
Greens deputy Yiorgos Perdikis submitted a draft bill to party leaders on Thursday morning that will be put to a vote at the plenary session of the House of Representatives in the afternoon, having earlier consulted with the island’s Attorney General.
President Nicos Anastasiades, who took office from a failed communist administration less than a month ago, has faced unexpected throwbacks from EU partners, mostly due to a lack of solidarity from other heads of state that have followed Germany’s push to drive Russian depositors out of the country, claiming thse are mostly oligarchs and money launderers.
The fallout from the “bail in” terms imposed on depositors of large savings accounts in Cyprus, has been the resolution of the island’s second largest bank, Popular Laiki, the takeover of its “good bank” operations by Bank of Cyprus, that has also been burdened with a 9 bln euro debt and the selloff of the three Cypriot banks’ operations in Greece for a meager 524 mln euros to Piraeus Bank.
As a result, shareholders in Bank of Cyprus have seen their stakes wiped out, while the bank’s ownership now passes on to large depositors who have been forced to accept an equity-for-debt haircut of 30% or more of their accounts in the bank.
The CEOs of both banks have been fired by Central Bank Governor Panicos Demetriades and administrators appointed in their place. Their board directors have also been ousted, while hundreds of bank employees took to the streets demanding that the centralbanker resign as he is solely to blame for introducing the harsh terms imposed by the ‘troika’ of international lenders – the European Commission, the European Central Bank and the International Monetary Fund (IMF).
Parliament initially rejected a Eurogroup demand for a universal haircut on all deposits last week, but later approved a set of measures that saved small depositors from any levy, but gave the central bank chief a free hand to suspend banking operations and set capital controls to prevent a bank run as Laiki was fast running out of cash.
Demetriades has already been criticised by President Anastasiades for not revealing the true picture of the banking sector’s demise any sooner and relations have been known to be sour among the two. Even the communist Akel party, that campaigned for the appointment of Demetriades as Governor last May, has turned against him, saying the centralbanker is to blame for the chaos that has ensued with banks shut for two weeks, payments halted and hundreds of businesses on the verge of closing.
GOVERNOR EXHAUSTED
The Governor told a parliamentary committee hearing on Tuesday that he was exhausted with handling the whole crisis and could not coordinate better with the new administration, while he also said that Laiki was purposely kept afloat for nine months, despite bleeding liquidity, because the bank had to remain alive until the presidential elections in February. Demetriades, a former economics lecturer at the University of Leicester, said on Wednesday that talk of him stepping down was inappropriate due to the collective effort to save the economy from total collapse.
Even euro zone heads of state wanted to see an administration change in Cyprus as the previous president, Demetris Christofias, refused to deal with efforts to rescue the banking sector and did not want to cut down the runaway public sector deficit that made any banking sector bailout even less sustainable.
But the public outcry has been against the Eurogroup and the ECB that deliberately allowed the liquidity to Laiki Bank rise constantly, having been subjected to a brutal 70% writedown of its Greek government bond holdings in 2011 that sent its losses spiraling to billions of euros.
In a desperate rush to save whatever they can, government officials are trying to introduce safety measures that will ensure the viability of public and private pension funds that have been banked with Laiki and Bank of Cyprus and could face elimination.
Meanwhile, people queued calmly at banks as they reopened at noon on Thursday under tight controls. Thousands had lined up at ATM machines over the past two weeks as branches remained shut and withdrawals were gradually reduced from 950 euros to 100 euros per day.
ARMOURED TRUCKS
Bank staff turned up for work early as cash was delivered by armoured trucks, and queues of at least a dozen people formed at branches throughout the country, with uniformed security guards on duty.
A lot of money had already left electronically, according to Reuters. Figures published by the Central Bank showed that savers from other euro zone countries withdrew 18% of their deposits from the stricken island in February, as talk of a tax on bank accounts rose.
Overall private sector bank deposits in Cyprus fell by 2.2% to 46.4 bln euros last month, after a similar drop in January.
Authorities say the emergency rules imposed to limit withdrawals and prevent a bank run will be temporary, initially for seven days, but economists say they will be difficult to lift as long as the economy is in crisis.
Controls included a cap of 300 euros on withdrawals, export of no more than 1,000 euros in cash and corporate transactions limited to 5,000, unless they are justified by invoices or payrolls.
The Cyprus stock exchange, whose clearing is linked to the smooth operation of banks, said it would remain closed on Thursday and is not expected to reopen until next Tuesday, after a public holiday on Monday.
