Translated by Foula Farmakides
In the economic history of Cyprus, the date August 31, 2018 will have a special place since then the Cooperative Bank was officially closed with all its branches being officially transferred to the Hellenic Bank. Along with that, 1,100 employees, out of the 2,700 employed by the Co-operative Central Bank, with the rest leaving using the voluntary retirement scheme initiated by the bank. More importantly, however, accounts of approximately 400,000 Cypriots were transferred to the Hellenic Bank as well. To have a benchmark, it is like privatizing a bank in France with 65 million customers, a bank in Germany with 80 million customers, and so on. It’s not so often that a bank has almost the entire population of a country in its clientele …
The “jarring note” of the Cooperative Bank compared to the speculative nature of the modern banking system, is related to its character, which is described by one of its founding members and director of the Limassol Cooperative Fund for many years: “Co-operation was rightly defined as the greatest social conquest in Cyprus over the last 110 years … Virtually every Lemesian family has experienced the importance of its 65-year existence and action, since through its funding three-quarters of Limassol was built, many shopkeepers and micro-entrepreneurs set up their business shelter, and thousands of parents helped their children study. Social communities such as the Limassol municipalities, cultural and sporting institutions, such as parents’ associations in schools and charities, have for years relied on the Cooperative Savings Bank of Limassol. The Cyprus University of Technology acquired its first shelter after a big donation from the Savings Bank in the center of the city”(Kazamias, 2018).
Selling the Cooperative Bank to Hellenic Bank ends a process that began in 2013 with Laiki Bank’s bankruptcy since it had a significant portfolio of Greek bonds, which were “haircut” with the restructuring of the Greek public debt in March 2012. This process had as a result that all major Cypriot banks were passed to international investors and even speculative funds. The selling of the Co-operative to the Hellenic Bank was a sacred gift for the latter, as Cooperative exceeded Hellenic Bank to the most important indicators. For example, Cooperative’s share in deposits in 2016 was 25.6%, while the Hellenic’s 12.5%. The share in Co-operative loans was 15.8% in the same year, while the Hellenic’s 7.8% (Stockwatch, 2017). If, therefore, there was a rescue, as the Anastasiadis government described the selling the Co-operative to the Hellenic bank, which he implemented only a few months after his election in January 2018, it was not the Co-operative’s but Hellenic Bank’s rescue (Vatikiotis, 2018).
The sale of Cooperative to Greek has, however, had far wider implications, such as:
First, the sale of Co-operative to the Hellenic bank was accompanied by a new state guarantee of € 2.5 billion for the next 12 years. This guarantee is added to a recent guarantee of 2.5 billion and a further guarantee of 1.7 billion that was given before 2017. The total of guarantees of EUR 6.3 billion is very likely to lead to an increase in public debt in Cyprus, which, as shown in the attached Table 1, although decreased in 2017 compared to 2016, continues to be more than twice as high as it was in the pre-Memorandum and the crisis era.
|Table 1. Public Dept of the General Government of the Democracy of Cyprus|
|Amount in mil. €||8.462||9.947||10.862||12.966||15.527||18.615||18.922||19.072||19.418||18.725|
|Source:: Republic of Cyprus, Annual Report Public Debt Management 2017, 3/2018|
Secondly, the sale of the Co-operative was used by the European Commission, which had to give its approval for the state guarantee, so as to change the auction regime radically in order to facilitate the auctions, to a great relief for the banks. Thus, the green light on privatization was used as a blackmailing leverage for the Cypriot Parliament to speed up the auctions, and the MPs found themselves in the face of the following dilemma: the abusive bankruptcy and seizure of bank accounts or the privatization of the Cooperative under abusive conditions and the liberalization of auctions .
The problem of Cypriot banks is best illustrated by looking at non-performing loans, defined as those loans that have not been paid for 90 days or banks are estimating that they will not be repaid in full. The problem of Cyprus is reflected in the European ranking, as shown in Table 2, where it is evident that it holds the second place after Greece on the basis of Non-Performing Loans as a percentage of the bank’s total loan portfolio. Within two years, (from September 2015 to September 2017), the percentage has fallen from 50% to 40.6% (European Parliament, 2017).
|Table 2. Non- Performing Loans as a % of the total loans of banks|
|Source: Non-performing loans in the Banking Union, Briefing European Parliament|
Nevertheless, the problem of Cyprus is much more serious if we look at the ratio of non-performing loans to the country’s GDP. Although they show a steady decline over time (from € 27 billion in 2013), they reached € 19.9 billion in April 2018 on a GDP, that on December 31st 2017 was € 19.2 billion! Such performance, namely that Non-performing Loans exceeded the GDP, was never recorded to any other country. And that fact of course, was equivalent to a time bomb on the foundations of an economy, and was due to the overwhelming growth of the banking sector in Cyprus and the excessive indebtedness of households and businesses. However, since June, the value of non-performing loans has been reduced vertically, as the new law, which the European Commission has laid down and DISY and DIKO willingly voted, allows both the sale of “red loans” to specialized funds and the massive first-sale auctions. The value of the vast majority of houses to be auctioned is less than 200,000 euros.
Need to be said that the problem of Nonperforming-Loans could have been dealt with if, from 2013 the governments of President Anastasiadis, rather than rescuing banks with taxpayers’ money to pass them to the new buyers without the burden, saved the borrowers. And if the money of rescue supported the income of pensioners, the unemployed and the real economy, creating new jobs and fueling a new growth cycle with a social dividend.
The painful impact on society of the generous policy of the state and the EU to the banks, like the other face of the same coin that has completed ten whole years of circulation, did not take long to show. On July 4th, the Anastasiadis’ government announced a set of education measures that resulted in the shrinking of public spending so as to save resources to mitigate the effects on public finances from the privatization of the Cooperative Bank. In particular, the Government of the Republic of Cyprus announced the increase in working hours of teachers in an effort to reduce the recruitments of the Ministry of Education, which will be limited to 159 from 379 for the school year 2018-2019. The direct result of this measure will be the intensification of the working relations of teachers, the deterioration of the quality of the educational work, the shrinking of employment and a blow to organized trade unionism, because, among other things, the drastic limitation of the leaves of the officially elected unionists is foreseen. The neo-liberal anti-reform in the education of Cyprus is expected to bring savings of € 52 million per year to a total of € 650 million spent annually by the Ministry of Education on payroll.
The effort of the Anastasiadis government to implement the policy of the smaller state in education moves to the opposite of the generous policy it applies to bankers. It is indicative of its “simplicity” that even the Auditor General of the Republic of Cyprus, Odysseus Michaelidis, in the context of hearings conducted by the Committee of Inquiry, among many revelations that he mentioned (such as correspondence between Finance Minister Ch. Georgiadis and Head of the Ministry, under which the European Commission and the Supervisory Authorities intervened to speed up the privatization of the Co-operative), stressed that the agreement with the Hellenic Bank “was not to the interest of the state”! Also, the “negotiation was done with the gun in its head” and, most impressively, that the assets given to the Hellenic Bank is 500 million more than the passive “(Zachariou, 2018). With the cuts, therefore, education is trying to cover the black holes in public finances caused by the policy of providing to foreign banks …
Against the attempt to shrink public education and downgrading the labor rights of teachers, serious social reactions are taking place, leading teachers, that reject the government plan, indicating that it is not “rationalization” as it is presented, but anti-grassroots cuts.
All of the above developments (bank privatization, first-property auctions, shrinking public education and employment, etc.) make the Republic of Cyprus vulnerable to the pressure to accept a solution similar to the Annan Plan, which was rejected by a referendum from the Cypriot people 14 years ago. The risk is that after the “economic memorandum”, which increased the public debt and hit the social rights of the Cypriots, “geopolitical memorandum” will follow that will harm the sovereign rights of the Republic of Cyprus.
Chani, G. (2017, October 16), “The banking “pie” ten years after”, Stockwatch, https://www.stockwatch.com.cy/el/article/trapezes/i-trapeziki-pitta-deka-hronia-meta
European Parliament (2017, March 15), Non-performing loans in the Banking Union, Stocktaking and Challenges, Briefing. http://www.europarl.europa.eu/RegData/etudes/BRIE/2018/614491/IPOL_BRI(2018)614491_EN.pdf
Kazamias, K. (2018, August 26), “There was no desire to preserve Co-operativism”, Newspaper Phileleftheros, Interview with Antigoni Solomonidou-Droussiotou, http://www.philenews.com/koinonia/anthropoi/article/572503/k-kazamias-den-ypirxe-boylisi-diatirisis-toy-synergtismoy
Vatikiotis, L. (2018, July), “The Banks in Cyprus are an open wound”, Epikaira, 396, https://bit.ly/2LOgzLn
Zachariou, K. (2018, August 31), “ The fall of the Cooperative Bank was a well organized crime from the Ministry of Finance”, Charavgi, https://dialogos.com.cy/haravgi/egklima-kala-schediasmeno-apo-to-ipik-i-katarrefsi-tou-sinergatismou/