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Categorized | Economy

Cyprus seeks to find people behind bank crisis

Posted on March 31, 2013

The hunt in Cyprus to find the “guilty men” responsible for the country’s banking disaster promises huge political upheaval domestically, but the crisis will have potentially more worrying consequences for its relationship with the EU.

Heads have already rolled at the two main banks – Bank of Cyprus and Laiki Bank – where the entire boards were sacked last week. And there is also severe pressure on the governor of the central bank, Panicos Demetriades, who has refused an unofficial request to resign to take the blame for the country’s financial ruin.

    The open conflict between Mr Demetriades, who was appointed last year by the now-ousted Akel communist party, and the conservative President Nicos Anastasiades over the bailout, foreshadows further political tensions in the rough economic years ahead.

    The fallout could also lead to jail time for some important figures on the island.

    An investigative committee of former Supreme Court judges will on Tuesday start looking into culpability, with a view to prosecutions when the information is presented to the attorney-general in three to six months.

    Mr Anastasiades said that the committee would have “a clear and wide-ranging mandate” to investigate “criminal, civil and political offences” in the lead-up to the crisis, adding that there was a “justifiable sense of anger” among the people.

    This comes amid news over the weekend that deposits of more than €100,000 in the Bank of Cyprus could see as much as a 60 per cent write-off – far more than the 40 per cent originally thought – another blow to local business.

    But once the dust settles after the blame game, it is the country’s relations with the EU that analysts say is likely to be the biggest political casualty of the crisis.

    Many Cypriots acknowledge that as a nation they bear responsibility for the banking crisis, but feel that the EU was unnecessarily harsh in imposing bailout terms, and thus to an extent see themselves as victims of outside forces.

    They hold the rivalries of an election year in Germany partially responsible, with all political parties there determined to place tough preconditions on any bailout. They also blame what they describe as a clash of economic principles between northern and southern European nations.

    “When the elephants fight, it’s the grass that suffers the most,” said Michael Tyrimos, chief operating officer at Nicosia-based software group Exelia Technologies and co-founder of a group promoting local entrepreneurship.

    “Joining the euro is looking like a big mistake, as we sacrificed the autonomy we had over our own economic policy,” he added.

    In nearby Greece, since their crisis began in 2010, the proponents of leaving the eurozone were often associated with the radical populist left, such as the Syriza party. But in Cyprus over the past two weeks strong anti-EU sentiment has quickly entered mainstream political discourse.

    Nicholas Papadopoulos, chairman of the parliamentary finance committee, told reporters that leaving the euro was a “valid point that needed to be explored” last week, forcing Mr Anastasiades to reassure it was not an option.

    Afxentis Afxentiou, former governor of Cyprus’s central bank from 1982 to 2002 and an advocate of the country’s 2008 entry into the eurozone, said: “If we knew at the time what might eventually happen, we might not have been so willing to join.

    “It seems they wanted to punish Cyprus,” he said of the EU and Germany in particular, sitting in his office at a local law firm.

    The anger has been palpable on the streets. Susanna Chrysonthou, a worker in the now stricken financial services sector, last week tried to retrieve cash from the joint account she shares with her elderly father.

    “He worked for that money 15 hours a day, seven days a week, for the past 40 years so that some corrupt government hierarchy could take it away. I don’t think that’s fair at all. The public feels very betrayed.”

    The effects of an economy expected to shrink by 10-15 per cent this year is likely to fuel further anti-EU sentiment and political instability, potentially resulting in Cyprus drawing closer to Russia, according to local analysts and business figures.

    Faith in the local political establishment has also been shaken by a list published in the Greek papers of current and former Cypriot state officials who allegedly had their loans written off by banks over the past five years. An official investigation has been launched.

    The only public institution who has come out relatively well from the crisis so far has been the financially powerful Orthodox Church, which is one of the island’s biggest landowners.

    “All the land that belongs to the church is at the state’s disposal to help the people so that the banking sector does not collapse and so we can stand on our own feet,” said Archbishop Chrysostomos last week to local reporters.

    Additional reporting by Quentin Peel