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Part of the Cypriot capital will be transferred to Greece

21 March 2013 / 17:03:41  GRReporter
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I repeat that this decision brings with it both positive and negative consequences. The positive are that this capital will mitigate the effects of the financial recovery programme whereas the negative are that you make the future generations poorer. Now, Cyprus has to make a political choice that will strike the balance between the two.

The Cypriot economy has relied on banking and tourism so far. How will the Cypriot economic model develop after the changes in your opinion?

Don’t imagine that banking services will play a lesser role in the Cypriot economy than before. We can say that the development of the Cypriot economy will slow down but the model will continue to function. Volumes may be lower, but nothing dramatic will happen.

However, all the fuss about Cyprus' financial problem cannot but bring negative consequences for the country and even the euro zone. What do you think is the worst scenario?

The worst scenario is behind us. The decision to impose a poll tax on deposits under and over 100,000 euro was the worst possible scenario that could have been introduced in Cyprus. From now on, everything is better. I think the dramatic shock will be avoided if the Parliament passes Anastasiadis’ alternative and Eurogroup approves it. My predictions are that the deputies will adopt the plan and the euro zone finance ministers will welcome it as well.

Will Cyprus raise 5.8 billion euro in this way?

In addition to reforming the banks, there will be a tax on deposits, which will not be a toll tax. It will affect only some deposits and mainly those exceeding 100,000 euro. The money from social security funds will be used too. I think the country will be able to raise the necessary funds.

Greece needed financial assistance because its deficit was very high and it was unable to serve its external debt. Cyprus’ macroeconomic indicators are significantly better than Greece’s. Why did Cyprus come to seek financial support from Europe and the International Monetary Fund?

The problem started with the "voluntary" reduction in the face value of Greek government bonds. It affected the Cypriot banks and broke the balance of the local economy.

The need to recapitalize Cypriot banks would have increased the external debt very much and it would have taken Cyprus out from capital markets lending. This would have driven the country to borrow more money to cover the recapitalization needs of the banks and to pay the bond loans with maturity in this period. This has led to the need for Cyprus to take financial aid from Europe, although its macroeconomic performance is relatively good.

We cannot compare the situation of Greece to that of Cyprus. The Greek case really is a precedent as regards the volume and the seriousness of the situation. I will repeat myself, but it is important to understand that if plan B, as it is called, had been adopted last week, the crisis would have been overcome with greater ease and more decisive dynamics.

Do you think the stage of "cutting all deposits" was only a political move rather than a real solution to the difficulties of the Cypriot economy?

I think so. Regardless of the political side and the interests embodied, I think that Cyprus played its role in the process. The government could have introduced a limited programme of fiscal consolidation, as all countries do in a similar situation, to mitigate the negative effects but that did not happen in time.


Tags: EconomyMarketsCyprusRescue programmeCrisisGreece
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