Cyprus to Swear in Finance Minister as Bank Controls Ease

Cyprus President Nicos Anastasiades will swear in his new finance minister today, the second of his six-week-long administration, after the government took more steps to ease banking restrictions in the island nation.
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Georgiades, a 40-year-old economics graduate from the University of Reading and a lawmaker with Anastasiades’s Disy party, will be sworn in at 9:30 a.m., according to an e-mailed statement from the president’s office in Nicosia yesterday. He was named to succeed Michael Sarris yesterday after Sarris, a former banker, resigned to aid the work of a committee set up to probe the collapse of the country’s two biggest lenders.
Sarris’s departure came eight days after helping the government clinch a second international bailout to stave off financial collapse after a first abortive attempt to tax all savers at the nation’s banks led to protests and political turmoil. Georgiades takes over an economy boasting the euro area’s first capital controls, designed to prevent a run on banks, and uncertainty about how the country will recover from the hit to its reputation as a financial center.
Economic Impact
“We know the impact on the economy will be bad,” said Lefteris Farmakis, an analyst at Nomura International in London. “It remains to be seen how quickly capital mobility and normal business can be reinstated so we can gauge how badly the economy will be affected.”
Cyprus was granted two extra years, to 2018, to implement measures linked to its bailout, government spokesman Christos Stylianides told reporters yesterday after the government wound up talks with the so-called troika of officials representing the International Monetary Fund, the European Central Bank and the European Union.
The accord, which details the fiscal terms and structural measures required for the 10 billion-euro ($12.8 billion) rescue, will be discussed at a euro working group meeting of finance officials on April 4.
Before departing, Sarris said that he couldn’t give an estimate for this year’s economic contraction and that the beginning of 2014 will be equally hard. The European Commission predicted before the rescue that the island’s economy would shrink 3.5 percent this year.
Successfully winding up the bailout agreement, which has been pending since last June, will secure financing for Cyprus from May, Sarris said. The government has 1.4 billion euros of bonds maturing on June 3.
Moody’s Investors Service downgraded Cypriot covered bonds to Caa2.
The agreement with the troika targets a primary deficit of 2.4 percent of gross domestic product this year and includes 351 million euros, or 2.1 percent of GDP, of expenditure cuts and revenue increases, the Phileleftheros newspaper said on April 1, citing a draft of the document. The rescue loans will have a 2.5 percent interest rate and be repaid over a 22-year period, state-run Cyprus News Agency said yesterday, citing Stylianides.
Bank Deposits
Cyprus reached an agreement with euro-area governments on March 25 to impose losses on uninsured depositors at the country’s two biggest banks, Bank of Cyprus Plc and Cyprus Popular Bank Pcl (CPB), which has been wound down, in return for the 10 billion euros of aid from the IMF, ECB and EU. The government had closed all banks to prevent deposit flight following the March 16 decision to levy a tax on all savers.
Cyprus eased capital controls on some transactions yesterday, the third tweak since a decree on the controls issued by the Finance Ministry. Banks reopened under tight restrictions, including a limit on daily withdrawals of 300 euros a person, on March 28. The EU has said it will continue to monitor the controls.
“It’s obvious the EU will push Cyprus to lift the restrictions as soon as possible,” said Farmakis. “In a monetary union capital controls are a bad thing if they are more than temporary.”
Sarris, who was chairman of Cyprus Popular Bank last year, submitted his resignation after Anastasiades, elected Feb. 24, established a commission to investigate the reasons for Cyprus’s banking crisis and identify those responsible.
Zeta Emilianidou was named to replace Georgiades as labor minister. Anastasiades will meet with his new Cabinet after Georgiades is sworn in.

Πηγή: Bloomberg