Co-op collapse probe unveils ugly face of Cyprus banking (and politics)

The probe into the collapse of the Cyprus Cooperative Bank culminated with a marathon nine-hour testimony and cross-examination this week of Finance Minister Harris Georgiades, popularly blamed as being the sole instigator of the crime, either by his own decisions or through his appointment of the bank’s management.

Despite the clear tension between the witness and the three-judge panel, and efforts to use the minister as a scapegoat in what will go down in history as the biggest abuse of public funds by politicians and all political parties alike, Georgiades defended all his actions, dating back to 2013, when the state stepped in with a whopping EUR 1.7 bln bailout.

He said that had the cash injection not taken place, Co-op depositors would have suffered a bail-in, similar to the actions on the Bank of Cyprus.

In effect, the bailout of the CCB prevented a second meltdown of the ailing economy, with almost everybody sitting on the fence and pointing the finger of blame at everybody else.

Georgiades argued that the government was under no illusion that it would ever get its money back, but that the rescue was also inevitable. On the other hand, he said that the mountain of non-performing loans (NPLs) was not the only reason for the CCB’s demise, as it suffered from structural issues as well.

In other words, the idea of privatisation would not have come through, simply because the European banking regulators wanted to see the CCB revive its finances first, before being sold off to investors or a partial float of new shares on the stock exchange.

The message was clear: “Shut it down”, they told us. Instead of learning from the mistakes of the past and moving on to a more streamlined banking sector, politicians refuse to give up their stranglehold on matters that will continue to give them leverage on almost everything that ordinary citizens do, which is why they will never forgive Georgiades of denying them this privilege.

Some observers even suggest that the ruling party and the country’s president himself have distanced themselves from the Finance Minister who, despite being tasked the obvious (to bring the economy back on track), is perceived as a threat to their own political longevity.

The bottom line is quite clear – the days of banking as we knew it are long gone and the era of the leaner lenders has already kicked in.

Political parties will have one less platform to accommodate their decades-long “jobs for the boys” scheme, banks are no longer as friendly and understanding of the needs of ordinary households and small to medium-sized enterprises, and that for a business to succeed in Cyprus, it needs to work on a cash-positive basis, as borrowing is out of the question. So, forget development.

With European parliamentary elections just six months away, all political parties and the president will try hard to convince the public that the economy is doing just fine (or they have a magic wand to make things better), that politicians are no longer meddling and that they are the saviours of struggling households and SMEs.

Even though we know they are the reason for the demise of the entire system, not just the Co-op.