AN ARTICLE which appeared in yesterday’s edition of Politis revealed that at the last Euro Group meeting, eight days ago, the issue of withdrawing emergency liquidity assistance (ELA) from Cypriot banks was raised. It was the second time in two months that we were faced with this threat which, if carried out, would have led to a collapse of the banks.
It was the threat of the immediate withdrawal of ELA, in the event of no agreement with the troika that obliged President Christofias to make a commitment to the memorandum last November. Eight days ago, with Germany taking the line that the signing of a memorandum would be put off indefinitely, the President of the European Central Bank pointed out that in such a case the ECB would have to cut the access of the Cypriot banks to the ECB. The banks had access to liquidity only as long as a memorandum was on the cards.
The ECB position proved helpful in that it forced the Euro Group to go against Germany’s position and set a date for the signing of a memorandum. Some of the group’s member-states felt that a banking collapse in Cyprus would have caused turmoil in the markets and threatened the stability of the eurozone. The compromise that satisfied the ECB and ensured the continuation of ELA was an agreement on ‘terms of reference’ that were binding for both sides.
Under the terms, Cyprus agreed to the inclusion in the memorandum of understanding of provisions stipulating the close monitoring of the institutional framework for tackling money laundering and of the institutional framework for transparency. Cyprus also assured that it would be able to cover its financial needs until the end of March. According to the report, the finance ministry has already started work on preparing measures that would be implemented as soon as possible; there are plans to set up a data-base to which foreign countries would have access.
The finance minister’s agreement to the terms of reference is binding for the government so there is no chance President Christofias would scupper it before he leaves office. The terms of reference would also satisfy the German government, which would have to defend its support for the bailout, for which there is strong political opposition, in an election year.
There may be dissatisfaction over the terms in Cyprus, but the painful truth is that we are in a very weak position. Our economic survival is totally dependent on our banks having access to ELA. Our politicians should bear this in mind instead of telling people they would never accept the privatisation of the SGOs or interference of the troika in our energy policy. Only our demagogue president can take this irresponsible stance, as he will not be around to sign the memorandum in March.
