Election promises sap economic, financial stability


By Stelios Orphanides

Instead of focussing on how to re-launch reform efforts to protect the recovery of the economy and financial sector, Cypriot politicians make election promises to voters that may seriously undermine economic and financial stability, an economist said.

Marios Clerides, who chairs the Cyprus Economic Society, said some of the promises given by politicians appear to ignore the fact that Cyprus experienced an unprecedented fiscal and banking crisis in which the second largest bank went down and depositors at Bank of Cyprus, the island’s largest, contributed to its recapitalisation with almost half of their uninsured deposits.

“They are promising things to voters that have an impact on the capital adequacy of banks without telling anyone who is going to shoulder it,” Clerides, who was chief executive officer at the state-owned Cyprus Cooperative Bank until 2015, said in a telephone interview.

“When you publicly promise such things, who is ever going to invest money in the recapitalisation of your banks?”

The promises politicians make range from write-down of debt owed to banks and relief to guarantors of their obligations – as in the case of spots run by the campaign of Diko chairman Nicolas Papadopoulos, one of the main contenders in next month’s presidential elections – to the rejection of banks efforts to auction foreclosed properties.

Clerides’ comments come as the Co-op, which received almost €1.7bn in taxpayers’ money in 2014 and 2015 in the form of capital injections, started preliminary discussions with potential strategic and institutional investors.

The bank is obliged to gradually reduce the government stake of over 99 per cent to 25 per cent or below with successive capital increases after getting listed on the Cyprus Stock Exchange (CSE). The first capital increase is scheduled for summer 2018.

The two other major lenders, Bank of Cyprus and Hellenic Bank, are expected to post losses this year mainly on increased expectations of further loan losses.

The head of the Central Bank of Cyprus’ supervision department Yiangos Demetriou told lawmakers in August that unless the Cyprus Cooperative Bank, the second largest Cypriot bank, is allowed to reduce its delinquent loan portfolio of 58 per cent of the total, it could go out of business.

“If the Co-op went down, the panic it would cause could potentially threaten other banks,” Clerides said.

He also took aim at promises made by politicians across the spectrum to compensate victims of the banking crisis, including depositors, bondholders, and even shareholders, as per recent proposal submitted by Disy and the Citizens’ Alliance.

In response, the government decided to make available €25m and other assets for this purpose, which other parties considered insufficient, threatening to reject the proposal in parliament.

The European Commission advised Cyprus in its December post-programme surveillance report to renew the reform momentum to consolidate economic growth in the long run, continue with fiscal discipline to reduce public debt, and to reduce the mountain of non-performing loans totalling around €22bn to protect financial stability.

The chairman of Bank of Cyprus, Joseph Ackermann, who was commenting at an event in Nicosia on Monday, warned against complacency and encouraged the government to maintain fiscal discipline and resume reforms to bolster the economy’s competitiveness.

“A lot has been achieved thanks to the Cypriot people’s sacrifices and the consequent implementation of appropriate policies, aided by external factors,” the former Deutsche Bank executive said according to the Cyprus News Agency.

According to Clerides, what has so far been achieved is threatened by Cypriot society’s lack of understanding of “how a budget works”.

“We believe that there is money for everything,” he said, adding that promises given ahead of the elections “create contingent liabilities” in the future.


About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • SuzieQ

    More warnings! I just hope the promises of money for anything and everything are promises which will be conveniently forgotten after the election.

    • Robtaaffe

      Of course it will.

  • Gui Jun An

    Can we take Mr Clerides (ex-Co-op executive) seriously?
    Will depositor protection of 100,000 euros still be valid if Co-op goes out of business? He’d better answer that question or savers will remove their deposits pretty quick.

  • Evergreen

    No miracle is going to happen here.

  • konstabo

    promises will not be fulfilled there word means nothing , it was these people who destroyed cyprus in the first place by gambling with peoples savings on the open markets so they could earn commissions and now that they have put the taxpayer in endless debt they issue a warning that if anybody tries to compensate those that they shafted for some measly commission then it would be detrimental to the economy…..
    they plan on never prosecuting anyone and never compensating anyone because any extra money is planned for themselves and not the people to whom it belongs and who is to pay for there endless greed and selfishness at the expense of the people who will pay and pay to cover for the endless debt brought on by the govt and bankers…..