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19.01.2014 - 21: 01

Cypriot crisis - a consequence of a number of serious errors

Michalis Sarris shared his opinion about past events that is happening now, and that waiting for Cyprus in the near future.

- Why, in your opinion, should start talking about the economic recovery of the Republic of Cyprus?

- Cornerstone - a return of confidence in Cyprus. March events have undermined the country's banking system, investment and consumer spending declined, long-term relationships between banks and their customers have been severed. This is a serious problem, and above all, we need to restore confidence in the country. It is also necessary to continue the fulfillment of the conditions of the agreements reached with our creditors. Some success has been mainly in matters of reducing government spending and control budget. However, the most difficult - to carry out serious reforms, "restart" the economy. In this way we will meet enough obstacles. I think people are not ready for the economic recovery to experience deprivation, even short-term. Unfortunately, after a large number of errors is impossible to go directly to the economic rostu.V What are the reasons?

- What, in your opinion, was the biggest mistake?

- First of all, we made an unacceptable increase in the budget deficit, without regard to the serious crisis in the euro area and the rest of the world. We have repeatedly warned about the upcoming challenges, but the deficit and the national debt increased too quickly, the banks gave loans indiscriminately, and then the government has not been able to help. Such a situation, no one would envy. In recent years, the volume of commercial loans in Cyprus grew to very large sizes. When 10% surge in the economy (in nominal terms), credit supply increased by 25%. It should not be, especially if the funds are used to finance a limited number of industries, including construction. Typical format lending in Cyprus - on the basis of the value of real property, are pledged as security. And if the value of this property falls, start a big problem.

Another reason for the crisis in Cyprus was the entry into the eurozone. The country was ready for it, and received a number of important benefits, but we did not take up his duties with sufficient seriousness. After joining any monetary union, it is necessary to closely monitor its competitiveness, fiscal policy ...

In addition, and in the euro area had a number of "architectural" errors. For example, the lack of a uniform for all countries fiscal policy and centralized control over their competitiveness. And so, as soon as any problems, this alliance was powerless. Decisions made, for example, "haircut" of government debt of Greece, became catastrophic.

Greece debt write-offs

- Speaking of Greece - was there at that time an alternative way to solve her problem?

- It was possible to provide more direct financial assistance to the immediate right. If this was not done. Do not argue, such a move would be difficult. After all, it more successful countries in the eurozone would have to convince their taxpayers of the need to help those who are still accused of misguided policies. In any case, the decision to write off Greek debt was wrong. As confiscation of deposits in Cypriot banks ...

Is Germany to blame?

- It is not clear why it is considered as if the taxpayers would have to pay for the mistakes of the weaker countries. After all, it was a question of lending, which means that countries with weak economies sooner or later would have paid their debts on loans.

- Do not forget that the risk in lending to these countries is always high. No one can guarantee that the debt will eventually be paid. Of course, Germany - not a bank, but only her budget was in surplus, and in such situations, only the country with a surplus in the state to give credit.

- Why does everyone accuse Germany of what happened in Cyprus? Do you also share this view?

- I would not say so. As I have already noted, the eurozone countries, especially in southern Europe, made some mistakes, and then problems arose within the whole Union. In this situation, Germany would reduce the surplus by stimulating consumer demand by raising wages, increasing the volume of imports. However, blaming Germany in the Cyprus problem only because of the fact that its economy is doing well, unfair.

- Why problems have arisen in the southern countries of Europe?

- Of course, the difference between the two countries to a large extent due to the traditions of discipline, both in the economy and in politics. For example, Sweden has gone on a special way - to turn out a surplus in good times, so that in difficult times to spend the accumulated funds. In southern European countries is the opposite - every time managed to gain additional resources through, for example, tax increases, they quickly spent. Differences between northern and southern nations are determined in part and the political system, the way politicians are aware of and carry out their duties for the public good.

Save or invest in the growth of the economy?

- Some believe that the need to stimulate economic growth, increasing consumption, others - that it is best to cut their spending, a few years to moderate policy, and thus create the conditions for growth. Which of the points of view you practice?

- To me, this argument seems to be useless. When you spend money that you do not, sooner or later you have to cut costs. I do not see an alternative. In this situation, any country should start to go through the consolidation nalogovobyudzhetnoy sphere, and only after that we can talk about any economic growth. For example, in the case of Cyprus are going great debate over privatization. Cyprus What is so unique that the port facilities, telecommunications and electricity must be under the control of the government? In other countries, it is engaged in the private sector, and the quality of services is higher, and their costs are lower. Of course, privatization will increase the number of unemployed: the state of the company over the years hired too many employees. But the work of this great state must somehow pay.

Consequently, companies raise prices for their services. And that is what prevents our economy grow. For restructuring in this area requires a certain political commitment and awareness of the need for change.

Unions

- That is, first of all, it should be a political decision? As in the days of Margaret Thatcher when she was actively involved in the fight against unions and minimizes costs to help the market. In your opinion, will it follow that example Cyprus? Will I eventually influence of trade unions?

- I think the first trade unions have played an important role in actively defending the rights of the working population. However, at some point, they got carried away and went too far. This is particularly noticeable in the public sector, in the banking sector and state-owned enterprises, where a lot of people work very little time in exchange for a lot of money. And the rest of the economy should pay for it. Well, when we can afford it. But now the situation is different and needs global change.

Privatization

- So, you are a supporter of privatization. What else needs to be done to stimulate economic growth in Cyprus?

- We need to help young entrepreneurs start their own business. Someone not stand, but some will succeed. In addition, we should encourage people to be educated in the areas that will be developed in the near future, for example in the energy sector. Necessary to change the educational system in order to prevent inconsistencies qualification requirements of the market. We have many graduates, but not in areas that are now in demand. Unfortunately, for some time, we have to put up with the outflow of specialists abroad: many young people after graduation prefer to work for several years in other countries. Nevertheless, in the long term, these measures will help to reduce the unemployment rate.

- Now small and medium business is dying out, the shops are closed, people are losing their jobs ... What is your economic forecast for Cyprus for the next three months?

- I think not only the next few months, but the next two years will be very difficult for Cyprus. To some extent, to blame unfavorable financial situation in the country. In addition, certain industries were saturated. Over time, successful companies get on their feet again. Those who will not be able to overcome the difficulties, it makes sense to try yourself in another area. Again, it will depend on how soon we will restore confidence in the banking system, how quickly investors again believe that Cyprus - the best place for investment. We have to wait and watch. Indeed, an important role is played here by the psychological factor. But one thing we can predict with confidence: we will have a long difficult period before the country will overcome the crisis.

Brussels and Moscow - what really happened?

- In the Cypriot press covered a variety of versions of the events of March in Brussels and then in Moscow. Tell us in a nutshell, what happened in reality.

- The conversation was difficult because at the time of the events in Brussels has been it does not matter who is in power. Confidence to Cyprus as a state to plummet. We have expressed our willingness to fiscal consolidation. We asked for a stay of a few years to cut spending and restore their earlier loans. But in return, we are given to understand that until the problems were relatively small, we did not take these measures and did not show the necessary political determination. Now, when the situation got out of control, why Europe should believe us?

International Monetary Fund and a strong power Germany were firmly convinced of the correctness of such a decision - to give Cyprus a small loan, and the rest to gather with those who in recent years 20 lived in a big way. We are also inclined to believe that Cyprus has got rid of the Greek part of its banking sector. And rightly so. But no one is taking such steps in a matter of days! We ourselves have tried to do this for a few months, but did not find the required support. In any case, it is unfair to future generations of Cypriot taxpayers paid for the current errors in this volume.

In turn, the Russian side has made it clear that after the loan 2,5 billion euros in November 2011 year we expect from active economic measures that would return to the financial markets and gradually pay the debt. Instead, Cyprus again turned to Russia for financial help ... Going to Moscow, I realized that we are faced difficult negotiations. Chance to get extra help from Russia were minimal. Especially considering that Europe hinted Russia not to interfere in the "intra" European problem. However, one who does not dare to try, will never know the outcome of the game.

The situation with the Russian exacerbated the fact that the EU has actively addressed the topic of money laundering in Cyprus Russian oligarchs. Therefore, the support of the Russian Federation would be perceived not only as a support for the poor Cypriots, but also as an aid secured compatriots, leading your business in Cyprus. Today such criticism in Russia and abroad perceived much more serious than a few years ago. And Russia, this image was useless. I can understand it.

- You really tried to resign on his way to Moscow?

- No. This press speculation. Everything was different. By agreeing to take the post of Minister of Finance, from the beginning I knew that my mission will be very difficult. 14 March in our hands was a reasonable solution. We proposed the confiscation of deposits in the amount of 6,75% and 9,9% in all the banks in Cyprus (including cooperative banks, Hellenic Bank, Bank of Cyprus, Russian Commercial Bank, and others.). It would not be easy, but this one was better than what happened in the end. I did everything I could, defended what he thought was right. But we did not follow this pattern, and I saw no point in staying in office. Besides, I did not belong to a political party that won the election, as it was the last time under the government of Tassos Papadopoulos. At this time, I came to the ministry as a technocrat rather than a colleague. When making decisions, I was guided by economic rather than political considerations. And I when I thought that this was the moment in which the government had to take responsibility for the next steps, I resigned. "Haircut" for all banks. Is this true?

- So, you have supported the idea of ​​a small "haircut" for all investors. Many believe that it is unfair for such successful banks, such as, Barclays Bank and the Russian Commercial Bank. Indeed, in contrast to the Laiki Bank and Bank of Cyprus, they followed all the rules, worked efficiently, why do they have to pay for the mistakes of others?

- When one or another bank is part of the overall banking system of the country and the situation in the same bank has a significant influence on the situation in other banks, we have to make sacrifices. Unless after sampling "haircut" to control the outflow of capital has become easier?

- Is it possible that in the case of a global "haircut" troubled banks would continue to operate at a loss, would not be ready for a radical restructuring, and as a result very soon there would be a need for another confiscation?

- Of course, if banks continued to make the same mistakes ... But it is also possible that they would have learned their lesson. By the time they have already recognized the need to reduce operating costs and wages, the change of leadership, etc. By the way, and now we need to be fully confident that the new leadership will be able to manage the Bank of Cyprus more rationally.

Was it possible to save Laiki?

- Can you think of a time when it became clear that the rescue Laiki Bank will not succeed?

- I think it's very difficult to talk about any particular moment. Certainly fatal to the bank were changes at the turn of 2006-2007 years. This period was characterized by a strong expansion in Greece and too large amounts of credit. Then came the cancellation of the Greek national debt ...

Nevertheless, it seems to me that even in 2011 year and the first months of 2012-situation [in Laiki] could be normalized. In that case, if we turned to Europe, admitted that we have a problem, and asked for help with the recapitalization of banks - at that time it was about 3-5 billion euros. In 2012 year, in view of elections in Germany and the rapid growth of banks' losses, to do this it was very difficult.

- Why, then, Laiki Bank has not declared itself bankrupt following the example of banks in other countries? It would not be the most simple and the right decision - to close, sell assets and return the depositors all that is possible?

- This policy works with small banks. In the USA, it happens very often. However, if that did Laiki, Bank of Cyprus would also be doomed. In fact, for Cyprus Laiki bankruptcy would entail the need to exit the eurozone. Because the government would have to compensate for the loss of customers and funds for it was not. Hence, there would be a need for additional money, which we, as a member of the eurozone, may not carry out. Money would need to be printed in a different currency, which, incidentally, would be depreciated very quickly. This decision was unacceptable for us. We should prepare a strong program and ask for help from Europe, as did Spain and Ireland. These countries have indicated their willingness to reduce salaries in the public sector banks, to drastically reduce spending on social programs. In exchange, they have requested direct financial assistance for its banks at that stage, when the situation was still under control and it was about 3-4 billion euros. But when you want to 10 billion, confiscation of deposits was the only available option.

Do Cyprus "three"?

- In your words there is some internal conflict. On the one hand, Cyprus needed a longer period of adjustment and financial assistance from other eurozone countries, and especially Germany, to cope with the situation. On the other, for a serious change in the country needs a political resolution, which in recent years in the country was not. If Europe has responded and gave respite and additional funding, the national debt would continue to grow, and received "easy money" reform again be postponed until better times.

- I think that many Cypriots agree with this point of view, and recognize that a Memorandum with the "troika" has become the best solution for Cyprus. Indeed, we have always talked about the need for change, but never moved from words to elu d. But when someone is willing to lend you the money, he expects you to take advantage of them right. And now the averages Cypriots believe: everything that is not taken by the government, for it will make the "troika". And it suits them. They just are not happy that part of the "troika", which pre-regarded confiscation of their savings. They are not against reducing the number of civil servants, market liberalization, improving governance in banks and so forth. All of these measures, as demanded by the "troika" of creditors, according to the Cypriots, it was necessary to take a very long time. I, in turn, do not see why Cyprus is not to be in the company of countries such as Germany, Finland, Austria, Sweden, the Netherlands. We have a high level of education, a good judicial system, good public institutions. Cyprus would follow their example and do not spend money, which he does not. I agree: if we were not made, we would have a long time did not dare to change. And foolish to count, for example, for natural gas. We had to start reforms in any sluchae.Kak restore confidence in Cyprus?

- You have correctly noted the need to restore trust in Cyprus and its banking system. We know what the problems were at that bank, which had to be closed. However, there is a second bank - Vank of Cyprus, who suffers from a similar "disease." And if in the Hellenic Bank 38% non-performing loans, the BOC is much more. BoC but still no attempt to solve this problem.

- I think this is only partly true. It is clear that the leadership of Bank of Cyprus is necessary to create a separate department that would deal with non-performing loans, to bring to his work of foreign experts. Developers [BoC customers] are concentrated in the hands of a lot of money and big debts, it is necessary to take measures to attract investors from abroad. But remember this: If a foreign investor to insist that a particular property is a billion, when in fact it is half the price, no one will agree to invest in such a project. It is important to understand that the investor also wants to make money.

- How long will it take to prepare the legal framework and restructure, to normalize the Bank of Cyprus?

- It is rather a question of mentality rather than legislation. I believe that we need to separate the political decisions of the business. Banking activity is largely determined by politicians. This is wrong. Should be allowed to technocrats to do their job, ask for help from other countries.

- What is the conclusion you can draw our conversation today?

- Cyprus must follow the terms of the agreement with our lenders. We must try to exceed the expectations of the "troika" to be able to go to the new negotiations and ask for further assistance from the fund for bank bailouts. However, we can not do that if we do not maintain the correct policy, following the example of Ireland. We do have a lot to learn from this country. Ireland has had huge problems in the banking sector, but it will gradually solve them and does not complain. She realizes his mistakes and is ready to correct them. A philosophy to preach in Cyprus and we made mistakes, but with the right approach we can fix them.

A source:

Tags: Economy, crisis, EU, Interview, Banks

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