By Stelios Orphanides
The decision of the Greek government to bring forward than originally scheduled the presidential vote and risk so snap parliamentary polls earlier than expected triggering massive sales at the Athens Exchange yesterday, may have a limited impact on Cyprus’s economy which saw its banking ties to Greece severed with last year’s bailout agreement, economists interviewed by the Cyprus Business Mail said.
Investors in Athens reacted to recent opinion polls which showed that left-populist Syriza party, led by Alexis Tsipras, is ahead of New Democracy party of incumbent prime minister Antonis Samaras. According to a Pulse poll published on Monday, conducted between Dec. 5 and 6, Syriza would get 29 per cent and New Democracy 24 percent if elections were held now.
Opposition leader Tsipras promised Dec. 2, to immediately scrap Greece’s 240-billion-euro-bailout agreed with the troika of the European Commission, the European Central Bank and the International Monetary Fund which supervises bailouts in the euro area, if he were elected, irrespective of the outcome of talks with lenders. In in recent months has stressed the need for negotiation rather than unilateral moves.
“Regarding possible implications for Cyprus one needs to note that the links with the Greek economy are considerably lessened following last year’s bail in and Cypriot banks exiting the Greek market,” economist Yiannis Tirkides said. “Overall instability, if we get there and psychological factors will have an effect, but will not derail the country’s efforts at normalising its economy”.
In a similar fashion, economist Alexandros Apostolides said he expects a rather indirect impact for Cyprus in case Tsipras does come to power.
“There shouldn’t be an impact since the whole idea of the selling-off was to prevent the contagion from one country to the other,” Apostolides said in reference of the sale of the Greek operations of Cypriot banks last year. “It may however have an impact on the profitability of other Cypriot companies operating in Greece. We are no longer as closely linked as before”.
Finance minister Harris Georgiades declined to comment when asked to do so, after he signed an memorandum of understanding on energy market information with Bank of Cyprus chief executive officer John Patrick Hourican earlier today.
Samaras decision came while the Cypriot finance ministry initiated a campaign to inform foreign investors about developments in Cyprus’s economy ahead of a possible new debt issue scheduled for early next year.
Under the terms of Cyprus’s bailout agreement with international creditors signed in March 2013, Cypriot banks, which suffered more than 4.5 billion euros in Greece’s debt restructuring in 2011, were forced to sell their operations in Greece to Bank of Piraeus for 0.5 billion euros. Bank of Cyprus, largest Cypriot lender, had to turn almost half of its uninsured deposits in to equity under the bailout terms, and absorb the operations of then second largest lender Cyprus Popular Bank, whose depositors lost all their deposits in excess of 100,000 euros.
Still, Tsipras’s rise to power may cause “collateral damage,” Apostolides, who is lecturer of economic history at the Nicosia-based European University of Cyprus, added as it makes borrowing more difficult for Greece and this in turn may do the same to the borrowing of other euro area countries, including Cyprus.
“The past is never a good criterion to judge the present,” he said. “Any re-ignition of the debt crisis will make it harder for Cyprus to borrow as well”.
If Syriza comes to power, this will create uncertainty and nervousness in financial markets as it promised to restructure Greece’s debt, economist Yiannis Tirkides said.
“If again, which I do not expect, this leads to Greek-exit scenarios, instability will be heightened,” and the consequences will be more severe, he added. “Whilst a Greek-exit scenario is in my view is very remote, the possibility of Greece generating financial turmoil again is not. In this latter case I would expect the European Union to reconsider a number of issues like debt sustainability and growth, which have been off the table for long”.
The euro area framework is today more robust compared to 2010 and is in position “to withstand more pressure,” Tirkides said adding “my bet is that even if Syriza comes to power, there will be compromise”.
Demetris Taxitaris, managing director of Symmetria F.S. Ltd, a Nicosia-based financial services company, said that until today, yields of Cypriot government securities at international markets have not been affected.
“Things look quiet for the moment with the yield of the Cypriot ten-year bond maturing in February 2020 remaining at stable at 5.05 per cent. Things may however develop in a way causing concern,” Taxitaris said.
“Cyprus was forced to delay a market test few months ago because of the foreclosure law setback and the delay in concluding the fifth review by Troika,” he said. “Now we have these developments in Greece which may result to an increase in the perceived risk investors have about euro area countries including Cyprus even as there seems to be no impact at the present stage”
International creditors resumed the financing of Cyprus’s economic and financial reform programme after temporarily suspending payments in response to the following the September foreclosure vote. Lawmakers passed the new legislation framework agreed with the troika as well as a total of six amendments which watered down its effectiveness.
President Nicos Anastasiades vetoed two of them which the parliament later amended and referred four others to the Supreme Court which ruled on October 31, that they were unconstitutional and thus lifted the obstacles in the resumption of Cyprus’s financing by the troika.