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

Financial Mirror (Cyprus) - - OPINION -

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.

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