THE GOVERNMENT’S decision to sell €200 million worth of short-term treasury bills to the internal market has reduced liquidity in the lending market and proved that the credit rating agencies were right to downgrade Cyprus, DISY number two Averof Neophytou said yesterday.
The DISY deputy, who is running again in this month’s parliamentary elections, accused the government of having no plan for the economy thereby affecting Cyprus’ credibility and “leading us to an endless spiral with negative consequences for the economy”.
When the state takes money from the internal market, this leaves the banks who buy the 52-week treasury bills with much less for lending, creating more competition for money in the private sector, he argued.
“When money is taken from abroad, it increases liquidity, when it’s borrowed from the internal market, it decreases liquidity,” said Neophytou.
According to Reuters, the government sold €200 million worth of government paper on Monday, with yields on the bids accepted ranging from 2.95 to 3.02 per cent.
“It means the government fears lending from abroad,” said Neophytou. He noted that the 10-year Cyprus bond has soared to levels close to 6.2 per cent, meaning Cyprus would have to pay a very high rate for borrowing money, close to what Spain and Portugal are charged.
“The rating agencies are very right in downgrading our economy because we act in a way that accepts the reality… that we cannot go and borrow money from the international markets,” said the DISY deputy.
“That means we cannot accept we have a problem. We have a lost government with a lost policy,” he added.
Neophytou charged Finance Minister Charilaos Stavrakis of going against his own advice, highlighting that in 2009 and 2010, the minister had said short-term borrowing and borrowing from the internal market were bad moves.
“And now he’s doing both because he’s afraid to go to the international markets in November to refinance his debt,” he said.
Asked what advice he had for the government, the opposition deputy said: “They need to take measures on the retirement age, the pension system and state payroll to send the clear message to the market that we are doing something, and then go with confidence to the international markets for money.”
