By Elias Hazou
CYPRUS is ready to consider writing off €330m in rescue loans to Greece if there is a deal with other euro area member nations to lighten the country’s debt load, the finance minister revealed on Thursday.
“We are willing to accept any mutually agreed arrangement that would further decrease Greece’s debt,” Harris Georgiades told MPs.
But he also pointed out that such an arrangement might not necessarily entail a debt write-off or an extra burden on Cyprus.
“We are ready to support the request for a third assistance programme [for Greece], provided such a programme is not geared to taxation, but rather to reform and consolidation, correcting the distortions in the Greek economy.”
Cyprus, the minister said, may talk the talk, but it should also walk the walk.
“Expressing our solidarity to Greece cannot be done using only the money of other member states.”
Having been shut out of the money markets, Greece has no option but to enter a new assistance programme, he added.
Cyprus’ rescue loans to Greece total €330m; €110m in direct lending as part of the Greek Loan Agreement, and another €220m through the European Financial Stability Facility (EFSF). The latter consists of government guarantees to the European Stability Mechanism, which have yet to be called in.
What’s more, the €110m in direct loans have already been calculated into the island’s long-term public debt.
The minister sought to reassure MPs that Cyprus can cope with the fallout from an overall Greek default and the country’s possible return to the drachma.
Despite an impact on trade, this would be mitigated by the fact that Cyprus is a net importer with regard to Greece.
In 2014 Cyprus imported Greek goods worth some €1.2bn, and exported goods worth €55m and services worth €274m.
Authorities are also monitoring the possible effects on tourism, Georgiades said. Last year, around 100,000 Greek tourists visited the island, spending €45m here.
On the banking system, the minister said it has been ring-fenced against possible contagion from Greece.
The huge exposure of Greek banks, operating here, to Greek government debt ended in 2013, he noted.
Greek bank subsidiaries are now effectively Cypriot entities, licensed and supervised by the Central Bank of Cyprus (CBC), adequately capitalised and with enough liquidity.
To date, Georgiades said, there have been no particularly alarming developments concerning the Greek-owned banks.
And EU authorities are on standby to react to the “slightest risk” of contagion from Greece, whose banks are fast running out of liquidity.
CBC director George Sirihas, meanwhile, said the four Greek bank subsidiaries operating in Cyprus – Alpha, National Bank of Greece, Eurobank, and Piraeus – have a combined market share of around 14 per cent, with just over €6bn in deposits.
The Greek branches here are operating without any restrictions, and though some deposit outflows have been observed, the situation is manageable, Sirihas told parliamentarians.
“We are prepared for any contingency, but at the same time we are not complacent either, since it is money markets that we are dealing with,” he said.
Asked what might occur in the worst-case scenario for Greece and its banks, Sirihas said the CBC has the capability to provide emergency liquidity to the Greek banks here.
He added that the question of ELA (Emergency Liquidity Assistance) is being discussed at the CBC, and scenarios have been drawn up to deal with any eventuality.
Emergency liquidity to banks has to be backstopped with collateral.
Local banks took a €4.5bn loss after the 2012 decision to write down Greece’s government bonds.
Cyprus itself is struggling to bounce back from a March 2013 bailout agreement, which involved seizing billions in people’s savings to recapitalise one bank and wind down another.
But the controversial decision had the additional effect of releasing Cypriot banks from toxic Greek assets.
