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Cyprus Internet Directory [ Top banker’s letters warned of what was to come ]

Top banker’s letters warned of what was to come

George Psyllides

The government’s argument that it did not know the scale of Cypriot banks’ exposure to Greece has taken a further battering in recent days following the leak of a bundle of letters by the former Central Bank governor to the government.

As recently as Thursday, the government, through its spokesman, tried to shift any responsibility, saying former Central Bank governor Athanasios Orphanides had never informed them of the exposure.

The spokesman was speaking after a bundle of letters was leaked last week showing that Orphanides had repeatedly - albeit unsuccessfully - asked to meet Christofias, warning, somewhat prophetically, about the dire straits the economy was entering.

Relations between the two sides had long been chilly because Orphanides refused to toe the line.

Orphanides had repeatedly called for measures to shore up the ailing economy and blocked government plans to sell off the country’s gold reserves. He had also questioned the government’s appointment to the Central Bank board of the head of an auditing firm with an international client list, on the grounds that there was a conflict of interest.

Meetings with the president were usually set up every two months. But they stopped after seven meetings between October 8, 2008 and August 10, 2009. There was just one more in 2011.

“Mr Orphanides also met with the president after 2009, but Mr Orphanides’ meetings with the president’s associates were regular and he never gave the information on the matter of the banking system and the Cypriot banks’ exposure to the Greek economy,” Stefanos Stefanou said. Asked about a letter sent by Orphanides to Christofias, Stefanou said: “we have not seen such a letter.”

In the letter, dated May 18, 2010 and classified ‘confidential,’ Orphanides again asked for a meeting, highlighting the critical condition of the economy.

He spoke of the dramatic developments in Greece and the EU in general “which intensified my pre-existing concerns about the economic developments in Cyprus”.

Orphanides said the “current economic collapse in Greece started as a fiscal crisis, endangering the banking sector, and spread into the entire economy.”

He said it then put other countries in the spotlight - Spain, Portugal, Italy - prompting the adoption of unprecedented drastic measures.

Cyprus had not yet been caught in the storm, but Orphanides said it was a matter of time before the ratings agencies and the markets considered it a “country with a vulnerable and weak economy” and start downgrading its creditworthiness.

He listed various factors to support this view, including: “the widening fiscal deficits and public and private debt and the valid questions about the reliability of statistical data – for example, the finance ministry’s official estimates to international investors were adjusted upwards without explanation, doubling the fiscal deficit.” 

Orphanides also listed “the economic connection to Greece” and “the very large size of the banking sector in Cyprus as a percentage of the GDP”.

The former top banker said “our banking sector is already under pressure because of the developments in Greece …I have been warning you for the past two years about the Cypriot economy’s downhill course. I am emphasising in clearest possible terms that if there is no change in course with the adoption of substantive fiscal measures, mainly on public expenditure, the consequences for the Cypriot economy will be catastrophic.”

But even if one were to side with the government in that Orphanides had not spelled it out for them, the fact that Cypriot banks were exposed to Greek debt was already in the public domain.

Everyone knew at least as early as the summer of 2010 after the stress tests carried out by the European Banking Authority.

And the banks also published a detailed account of their bond holdings in June 2011.

Orphanides and Christofias saw each other once more in February last year before their final meet earlier this year where the banker was told his contract would not be renewed.

Kikis Kazamias, who assumed the finance portfolio in August 2011 forged a close, yet short-lived, relationship with Orphanides and is said to have lobbied for an extension of his contract. Kazamias resigned in March citing health reasons.

Orphanides did not meet with other associates of the president - in fact, the Sunday Mail has learned that Stefanou had refused to see him.

He nevertheless kept AKEL chief Andros Kyprianou informed by sending him information on Cyprus’ bond yields at regular intervals.



(Source: Cyprus Mail)
Copyright © Cyprus Mail 2008 Please contact Cyprus Mail for the copyright terms of this article.

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