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The opposition-led House of Representatives voted to extend the suspension of foreclosures on mortgaged properties by another month on Thursday, further delaying the payment of about €86 mln in bailout money and jeopardising the rollover of some €2.9 bln in public debt later this year.
The extension was proposed by the centre-right Democratic Party (DIKO) and the socialist EDEK and supported by 27 of the opposition MPs with the argument that the parallel bills on insolvencies that ensure that primary homes are safe from repossession by banks are still not ready. The 18 votes of the ruling Democratic Party (DISY) were hardly enough to block the motion.
Concluding the bill on foreclosures is an obligation as part of the €10 bln bailout plan and any delay could also push back the next payment of €436 mln from the Troika of international lenders.
Inspectors from the Troika of the EU, ECB and IMF are in Cyprus this week to review progress in the island’s privatisation and reform programme and will probably say they cannot conclude a full review until the foreclosures debacle is resolved and compliance is restored.
A clearly upset Finance Minister Haris Georgiades said on Friday that the negative vote in parliament derailed the government’s plans for debt issuance and use of the ECB’s quantitative easing programme.
He warned in his comments on national radio that the state coffers may withstand the lack of funds, for now, “but we now have a serious problem before us, precisely because of the uncertainty of the state’s financing, either from the Troika, or from the international markets.”
The ECB’s QE programme would have secured some €120 mln in monthly purchases of bonds, but the central bank’s President Mario Draghi clearly stated that this would be subject to a smooth progress in the economic adjustment programme.
“Access to this important tool of QE is available to member states with assessments over the investment limit. Today we don’t have this tool in our hands and the benefit that would be direct and substantial, and we have now lost it.”
The Finance Minister argued that President Nicos Anastasiades had proposed a compromise to party leaders, whereby parliament would vote for the foreclosures law but, on the other hand, it would be excluded from the law on primary residence.
The Troika has reiterated that with non-performing loans reaching 50% of the banking system’s loanbooks, it is necessary to begin clearing the burdened balance sheets by recovering debt or restructuring loans.
StockWatch quoted Troika sources as saying that after Thursday's parliamentary decision, the programme is suspended until March 2 and the €86 mln outstanding payment from the previous tranche will remain in IMF funds.
"This decision was unnecessary," said deputy government spokesman Victor Papadopoulos, adding that "the government now must manage a difficult situation."
DISY President Averof Neophytou warned during his comments in parliament, that the liquidity of the Bank of Cyprus was also at risk and would have to increase its €7 bln exposure in emergency liquidity assistance (ELA) by a further €800 mln.
The opposition parties have criticised the government’s scare-mongering tactics linked to the delay in promoting insolvency bills.
Parliament reached a collision course with the government last September when it first warned that it would not pass any of the foreclosures bills unless the parallel insolvencies framework governing bankruptcies was also approved and primary homes were exempt from repossessions, thus helping low-income households amid a national unemployment rate of 17%.
The Troika of lenders officially (and publicly) stated that funding will be blocked unless the country complies with its obligations.
To date, no one seems to have a clue where the insolvency framework has stumbled and the government insists on pushing through the foreclosures bills, saying that these would be deemed ineffective as long as the regulations included in the bankruptcy laws were not implemented.
