Former Cyprus president critical of troika over bailout terms

Former Cyprus president George Vassiliou is highly critical of of the EU-IMF troika for "imposing a unilateral solution" on Cyprus, particularly the banking sector.

Nicosia, Vassiliou, who served as the republic’s third president from 1988-93, said: “It is clear that they wanted to kill our business services sector. If they do that, there will be no Cyprus” since the country’s “economy rests on two pillars: business services to firms and investors and tourism. The [troika’s] decisions were taken in a formal way without considering the realities of Cyprus.

"First, they attacked Cyprus as a 'casino economy' and money-laundering centre when they knew these accusations are not true. Objective . . . investigators like the Basel Institute on Governance and UN agencies have given a higher rating to Cyprus than to Germany and other EU countries. Second, this is the first time in the history of Europe that they imposed a haircut not only on investors in banks but also on depositors.

“By blocking access to 90 per cent of deposits [over €100,000], freedom of capital movement – one of the major visions on which the EU has been built – has been invalidated. Blocking deposits is suffocating the Cypriot economy.

"Third, by dissolving Laiki Bank, the second largest, they have wiped out all the shareholders of that bank and by restructuring the Bank of Cyprus, the largest, they have also harmed shareholders.

'Few opportunities here'
"This involves huge losses for ordinary people. Unlike in Europe and the US where the top 2-3 per cent invest in bank shares, 65-70 per cent of the population of Cyprus has shares in these banks.

“Every Cypriot tends to save money – small and large sums – and since there are few opportunities here, they bought shares in these two banks. Now they see their whole life savings disappear.

“Large depositors also see their deposits reduced by the obligatory purchase of shares” in a faltering bank.

He believes that despite the harm the bailout deal has caused, Cyprus still has tremendous advantages in the business services field and that it must continue basing the economy on this sector.

He said the Bank of Cyprus, as the country’s surviving major bank, has to be supported so that it can fulfil its tasks.

There are many things that can be done to expand tourism, the country’s second largest economic sector.

There are, he said, huge opportunities in medical tourism, particularly for post-operative patients’ recouperation. In this respect, Cyprus’s highly-qualified doctors and benign climate are advantages.

“We can expand our educational sector. We have a number of universities with teaching staff educated at the world’s best universities and we can offer a wide variety of degrees: law, medicine, IT and other subjects.

“We also need to take the initiative to help highly qualified young people to use their knowledge and skills to develop new enterprises, particularly in the IT sector.”

While he is highly critical of the troika’s policy on banks, he says the package of measures for privatising semi-public companies and restructuring the economy is a step in the right direction and the country should make all possibile efforts to implement the package in order to make the economy sustainable.

“The government must send a very clear message to the troika that for there to be stability in Cyprus there must be no changes to the basic parameters of the Cypriot economy and no new haircuts.”

Vassiliou, who negotiated Cyprus’s EU entry, insists that it must stay in the euro zone.

“In my opinion, the euro is the natural consequence of the creation of the common market and a precondition for a stronger and safer European Union. Personally, I am really surprised that there are well-known professors and commentators who promote a Cypriot exit from the euro zone and the EU. The argument they use is that if you have your own currency, you can devalue it as much as you like in order to become more competitive.

'Becoming competitive'
"This is a simplistic idea."

He said that Cyprus would in one moment destroy any future for business services and could not generate revenue by becoming competitive because the country has no minerals and no manufactured products to sell.

“If we leave the euro zone, other countries will follow. The existence of the EU is necessary to ensure the future of Europe.

“Although the European financial stabilisation mechanism and the Central Bank have greatly harmed Cyprus, their actions under no circumstances justify the killing of the dream of a stronger Europe through the development of a monetary union.”