* Greek debt writedown helped trigger vicious cycle *
Outgoing central bank chief Athanasios Orphanides accused the government of ignoring him at its peril on Monday, with the cash-strapped island possibly facing a major bank bailout with empty pockets.
Orphanides said in his last public appearance before 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.
"It's a shame we got to this point. For those of us in the know, it was apparent that with some simple actions we could have avoided the risks we are exposed to today," Orphanides said.
This dispelled accusations from the ruling communist party leaders that the centralbanker “did not do enough” to prevent the impact of the Greek crisis on the Cypriot banks.
Orphanides's five year term as head of the central bank and as an influential ECB policymaker ends on Wednesday.
"The Greek debt haircut proved very damaging to Cyprus and to the euro zone," Orphanides said. 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.
Before a April 27 meeting where Christofias told Orphanides he would not be reappointed, the two hadn't met for over a year.
Asked what he would have done differently to what Christofias actually did, he 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.
Orphanides was known to have angered Christofias in the past with repeated calls for fiscal consolidation. He didn't pull any punches on Monday, saying authorities had repeatedly delayed taking measures to arrest fiscal slippage.
EMPTY COFFERS
High yields shut Cyprus out of international capital markets a year ago. Spooked by the bailout experience of Greece, the government turned to its Russian allies for cash in late 2011 instead of to European partners.
Asked whether Cyprus may itself be forced into a support mechanism to fund a bank if necessary, Orphanides said: "We should not be worried about this possibility if the efforts of the past few months by the central bank and the finance ministry yield results."
He did not elaborate on what options authorities were working on. Finance minister Vassos Shiarly has said that any state intervention, if required, would take place well before June 30, the cut off date set by the European Banking Authority for banks to bolster their capital.
STICK TO AUSTERITY
Orphanides said Cyprus must not waver from the path of austerity if its economy is to emerge with a clean bill of health from the vicious cycle in which it is trapped.
He told parliament that fiscal measures taken by authorities were a step in the right direction, but said he was concerned about comments from officials that targets has been missed in the first quarter.
"The economy of our country is going through critical times. The right handling (of this) is required. At stake is not only the economy of Cyprus and the well-being of its citizens, but its national reputation and standing," he said.
Orphanides said the exclusion of Cyprus from debt markets from May 2011 had increased domestic interest rates, harming growth and employment.
That yield surge, also linked to slippage and delays in taking corrective action, has put heavy pressure on the banking sector, "exposing (it)… to unprecedented risk, rendering it vulnerable to negative external developments."
