Our View: Another instance of leaving it all to the last minute

MEMBERS of the House finance committee, reportedly, persuaded the Central Bank at a meeting on Tuesday night to try to push for a lower amount for the recapitalisation of the banks so that the debt Cyprus would require would be sustainable. As has been reported, if the recapitalisation amount decided by PIMCO – the company brought in to investigate the capital needs of the banks and co-ops – remained at €10 billion the Cyprus debt would be unsustainable, making the privatisation of semi-governmental organisations and a haircut of the government debt necessary.
Earlier on Tuesday, at a finance committee meeting attended by the Central Bank governor, deputies expressed bewilderment about the way the banking needs that were expected to be no more than €6 billion had risen to €10 billion. The governor was accused by opposition deputies of not objecting to the methodology, proposed by the troika, for calculating the financial needs. They claimed that the Central Bank should not have allowed forecasts of the worst case scenario to have been included in PIMCO’s terms of reference and criticised the Bank for supposedly allowing the investigation to be based on ultra-pessimistic assumptions about growth rates, unemployment and property prices.
The belief that the government and the Central Bank wanted to bloat the financial needs of the banking sector, in order to shift blame for the poor state of the economy away from the government, is widely held among opposition parties. Even if this were the intention, it does not mean that the troika would have necessarily agreed to a different methodology and less pessimistic assumptions about the performance of the economy, being used by PIMCO. Irrespective of who is to blame, it has finally dawned on everyone – Central Bank, the government and opposition parties that €10 billion would make the debt unsustainable.
We have been aware that this would be the amount, subject to PIMCO’s confirmation, since November, but nothing was done. On Tuesday night, just one week before PIMCO’s report is to be released and two weeks before the Euro group meeting to discuss our bailout, everyone has united in an effort to secure a lowering of the financial needs of the banks. As with everything, we have left something of critical importance to the last minute, thus minimising the chances of securing the desired result.
The Central Bank has commissioned a second study from another big consultancy firm, Black Rock, in the hope that its calculation of the banks’ needs would be significantly lower and use this to counter PIMCO’s figure. Apart from this, the governor told deputies there were also other ways of making the troika loan serviceable – extending of the repayment period of the €2.5 billion loan from Russia, turning all the convertible bonds issued by the banks into shares and privatising SGOs.
We can only hope the Central Bank has not left everything too late.

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.