Greeks Blaming Greeks

This editorial was published by EnetEnglish. 

Cypriot President Nikos Anastasiades addresses civil servants on March 29 in Nicosia (Reuters) 

As armies of reporters departed Cyprus towards the end of last week, and the Cypriot people felt that they had sufficiently vilified the Eurozone for leaving their banking system uninsured against its own misinvestments, they settled down to the task of apportioning blame among themselves.

The government’s dissatisfaction with central banker Panikos Dimitriades for sacrificing Laiki Bank, the country’s second-largest, is an open secret. One lawmaker on March 28 brought forward a motion to transfer his newly elected extraordinary powers to resolve financial institutions to the finance minister, instead. The discussion was postponed.

Potentially nasty secrets are beginning to wend their way into the press. Greek national daily Ethnos published excerpts of a list of current and former Cypriot politicians who, for one reason or another, had large portions of un-repaid loans written off. The list has been lodged with the Cypriot parliament’s transparency committee, the newspaper said on March 29, and awaits discussion.

This soul-searching process was kicked off by President Nikos Anastasiades himself, who was elected on February 25 and entered in medias res a negotiation the previous Cypriot administration began with the Eurozone the previous summer. In a contrite address to the nation on March 25, he announced a judicial panel with powers to investigate and prosecute financial or political wrongdoing, both during his brief tenure and, more to the point, under the previous administration. He refined the point at the end of the week. “I am not one to point fingers,” he told a gathering of civil servants, “but I think that there are times when people have to exercise some self-criticism, and especially those who held the management of the economy in their hands.”

Anastasiades and his cabinet have given the judicial inquiry the broadest possible rubric, but they have emphaised the need to investigate the circumstances under which Cypriot banks bought Greek bonds, particularly as other European banks were dumping them; the circumstances under which two administrations were prevailed upon in the Eurogroup to accept the terms of the bailout; and why Laiki Bank was allowed to accrue 9.3 billion euros’ worth of debt to the ECB when it was technically insolvent.

The judicial inquiry ought to preoccupy Greek authorities as much as Cypriot. Greek negligence, or worse, was instrumental in the two most destructive individual acts to the Cypriot economy in recent years.

The first of these was the massive explosion on Greece’s military base at Mari, on Cyprus’ south coast, in July 2011. The explosion, caused by improper, prolonged storage of confiscated ordnance bound for Syria, all but destroyed Cyprus’ largest power station at Vasiliko, which lies adjacent to the base. The costs to the Electricity Authority of Cyprus of restoring generating capacity, providing temporary diesel generators and of lost revenue due to power cuts is in the neighbourhood of 400 million euros.

Among other things, the explosion was a crushing blow to the credibility of the Christofias government. It would sorely miss that credibility the following year, when Cyprus would face a comeuppance over the second and more destructive of Greece’s acts – the sale of government bonds to the Bank of Cyprus and Laiki Bank. 

The bonds’ devaluation in March last year cost the Cypriot banks approximately five billion euros, rendering them insolvent. The Cypriot government hadn’t the cash to bail them out, so they survived on life support from the European Central Bank in the form of emergency liquidity assistance. This made the ECB the arbiter of time on Cyprus’ negotiations with the Eurogroup. When, on March 16, it pulled the plug to force Cypriot compliance, the game was up.

The process of recrimination is not a pleasant one, particularly when it pits Greeks against Greeks; but before blaming northern Europeans for their hard-hearted and desperate decisions, the Greeks need to clear out their own deadwood.

It is an open secret among bankers that the purchase of bonds has long been a condition of doing business in Greece. Successive Greek governments financed their reckless election promises by selling paper to high street banks. The banks, in turn, made easy profits on that paper during the years when markets effectively stopped assessing risks. If the Cypriot investigation means business, it should end a number of political and financial careers in both countries. That will be a painful process, but if the Greek crisis has demonstrated anything it is that the political system cannot survive unless it cleanses itself and installs a proper distance between itself and the private sector.