Abstract
The Cypriot banking sector started growing uncontrollably in 2004, the year that Cyprus became a full member of the European Union . By 2011, banking sector assets more than doubled to reach €141.0 billion, or 9.5 times GDP.
…over the period 2004-2010, Cyprus banks grew dangerously large through a combination of aggressive management and weak governance, compounded by a failure of the public authorities to appreciate the risks that the banks were running, and therefore to take effective measures to rein them in. At its height in 2009, the banking sector was equivalent to 9 times GDP, one of the highest levels in the EU.
Independent Commission on the Future of the Cyprus Banking Sector, Final Report, 31 October 2013 (http://www.centralbank.gov.cy/media/pdf/LSE_ICFCBS_Final_Report_10_13.pdf).
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Notes
- 1.
See Hill (2010) .
- 2.
For example, the distance from Larnaca to Beirut is 112 nautical miles while the distance from Limassol to Haifa is 139 nautical miles.
- 3.
The ten kingdoms were: Salamis , Kition , Amathus , Kourion , Paphos , Soli , Tamassos , Ledra , Idalium and Chytri .
- 4.
These events provide the historical setting to Shakespeare’s Othello, that tells the story of the commander of the Venetian garrison defending Cyprus against the Ottoman Turks .
- 5.
See, however, Panayiotou (2006) for a more nuanced sociological perspective on the historical conflict between Greek and Turkish Cypriots.
- 6.
For a comprehensive history of AKEL and the left-wing movement in Cyprus , see Katsourides (2014). Note, however, that over the years AKEL ’s position on independence fluctuated.
- 7.
For a fascinating British soldier’s perspective on EOKA , see Bell (2015).
- 8.
- 9.
George Clerides attracted about one-third of the vote. His son, Glafcos Clerides, had better luck: he was elected president in 1992 and served until 2002.
- 10.
Chrysanthos Anastasiades was the father of the current President of Cyprus , Nicos Anastasiades . A photograph of the young Nicos Anastasiades , a lawyer, with the defendants outside the court has been used to link him to the defence of EOKA B in court.
- 11.
Ioannides had replaced George Papadopoulos who was removed following the student uprising at the prestigious Metsovion Polytechnic, which ended in bloodshed. It is believed that Ioannides, a hardliner who was the head of the military police, staged the events in order to justify Papadopoulos’ removal, as the latter was planning a softening of the military’s grip. Ioannides formed a puppet government comprising of individuals who would take orders from him. It is widely believed that the individuals he chose for various ministerial roles were not consulted, but were rounded up by the military police and ordered to take up office.
- 12.
See European Commission , Press Release Database: http://europa.eu/rapid/press-release_DOC-93-5_en.htm.
- 13.
The relatively modest percentages of DIKO meant that they needed support from either the left or the right to win an election.
- 14.
Orphanides was also recommended by the then finance minister Michael Sarris . who was well acquainted with Orphanides’ career as they both had spent large parts of their careers in Washington D.C. Sarris was a World Bank economist before returning to Cyprus to take on the role of finance minister.
- 15.
See EBA Report on the Dynamics and Drivers of Non-Performing Exposures in the EU Banking Sector, published 22 July 2016. https://www.eba.europa.eu/documents/10180/1360107/EBA+Report+on+NPLs.pdf.
- 16.
An article by the columnist and chairman of the investors’ Association, Michael Olympios , which appeared in Politis—a major newspaper—entitled ‘Too big to save’ (which was inspired by a similar article of Joseph Stiglitz ) alarmed the CEO of Bank of Cyprus . According to Michael Olympios who had a conversation with the editor in chief, Andreas Eliades threatened to cut €50,000 worth of advertising, forcing the paper to drop his column. The events were described in a sworn testimony in court during one of the criminal cases against Bank of Cyprus and some former executives.
- 17.
Christofias, however, confided in me that he was never briefed about the effects the PSI would have on the Cypriot banks. By contrast, on 19 April 2011, when Greek debt restructuring was being publicly floated, Orphanides gave an interview to Reuters in which he claimed that Cypriot banks could withstand Greek debt restructuring. Specifically, he said: ‘With respect to the exposure of Cypriot banks to Greek debt , we have examined the situation and we have come to the conclusion that even though there is exposure in our banking system, that exposure is manageable because our banks are very well capitalized. So even in the highly unlikely situation, if you wanted to run the counter factual, for example, of imposing losses on the holdings of Greek debt , our banks would manage to weather that’. See: http://www.centralbank.gov.cy/media/pdf/INTE_GOVINTERVIEW_190411.pdf.
- 18.
A Cyprus Securities and Exchange Commission investigation subsequently fined the bank for failing to promptly announce to shareholders the capital shortfall. The bank and the bankers involved are now facing criminal charges over this and related violations.
- 19.
‘According to reliable sources, PIMCO , in collaboration with AKEL and Demetriades, had been plotting the demise of Cyprus banks for several months before PIMCO came to Cyprus ’, Vassilis Rologis , a former chairman of Bank of Cyprus , exclaimed in my presence at a parliamentary session that was looking into the causes of the crisis in 2013. Aristodemou, the property developer who took over from Rologis in 2008 at the helm of Bank of Cyprus , hailed his ‘agreed’ sale of Venus Rock , a massive development near Paphos financed by Bank of Cyprus , to a Chinese investor at approximately €300 million in the summer of 2013 as tantamount to disproving the results of the independent diagnostic exercise, as, he claimed, the property prices he obtained were above forced sale values used by PIMCO . By June 2014, and notwithstanding generous government support in the form of visas for Chinese property buyers and town planning relaxations, Aristodemou’s company was forced to admit that the sale had fallen through.
- 20.
Parliament’s inquiry, in fact, endorsed the bankers’ views that the capital needs of the banks were exaggerated, failing to note that, even after the banks were fully recapitalised using PIMCO ’s adverse scenario, the capital buffers of banks remained thin and well below banks that had been bailed out in other countries.
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Demetriades, P. (2017). Entering a War Zone. In: A Diary of the Euro Crisis in Cyprus. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-62223-1_2
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