Cyprus is doomed beyond redemption

One can learn the fine art of blaming others or passing on the buck from the Cypriot President, Demetris Christofias. He has been more than vociferous in his railing at the bankers over Cyprus' bailout. But never for once thought of pausing a while for introspection over how pathetic has been his governance and the fiscal management of his administration. The bankers cannot avoid their culpability but the primary responsibility of bringing Cyprus to its current sorry state of existence lies with its president. Demetris Christofias cannot run away from his guilt.

The country is currently on a dangerous course of rapid deterioration poised perilously on a fiscal cliff. It is in desperate need of €2.1 billion for servicing its maturing debt latest by July this year. A recent report on Cyprus Mail referred to economist Fiona Mullen said Cyprus faces a "hard deadline" on June 3 when it needs to find over €1.4 billion in maturing Eurobonds and a further €714m by July 4 for maturing government-registered stocks. "If we can't pay that then we go bust and then we're not just junk status we're basket-case status, it takes a very, very long time to get back from default status," said Mullen.

European media, especially those in Germany has been scathing in their criticism of Cyprus. German media has described the nation as a centre for money laundering and has called Cyprus economic profligate of the first order. In ways more than one the vilification of Cyprus is correct. And Germany has been avowedly opposed to any kind of international bailout for Cyprus. Germany is opposed to bailing out Cyprus because of the size of the country's economy and its debt sustainability.

But the question is should the world, Europe in particular, bail Cyprus out of its fiscal mess. The country, in fact, doesn't deserve any such munificence but Europe cannot really afford to let the profligate roam pariah. Bloomberg news says, Cyprus collapse 'would threaten euro'. Bloomberg has reached the conclusion after having talked the issue with German politicians who recognise that a collapse in Cyprus's banking industry would pose a threat to eurozone stability.

The crisis in Cyprus has now blown out of proportion primarily due to wrong, myopic and destabilising politics of its President, Demetris Christofias. Only heaven perhaps knows why he and his government decided to marginalise the control and role of the central bank in matters related to debt issuance and debt monitoring. Christofias' government took away the two responsibilities from the central bank and gave them to the ministry of finance. The decision not only politicised debt management but also flung open the gates of corruption.

This was followed by a series of wrong moves and decisions which further pushed the country into bottomless abyss of financial mess. Former Cypriot finance minister, "Charilaos Stavrakis, borrowed only short-term in order to avoid austerity measures, and €6bn is needed today as a result of that decision. More worryingly this government, like all governments before it, decided to bestow patronage, despite the economy taking a nosedive. In 2009, government expenditure rose by 7.8 per cent even though revenues fell by 8.5 per cent. Despite a sluggish recovery, government expenditure only fell in 2011 when Cyprus entered a double-dip recession: this irresponsible spending led to an unsustainable funding gap which the government created."

As if this madness was not enough, President Demetris Christofias supported an equally mad decision of a Cypriot bank, Marfin Laiki, to shift its central offices to Greece when the Greek financial crisis had already bloomed full. This made the Cypriot bank subject to Greek rather than Cypriot regulator jurisdiction. The president's support for Marfin Laiki's move was again a political decision and in this he again did not heed to the objections raised by the central bank governor. Marfin Laiki  today is in need of €3bn of government aid to remain in business.

The loan of €2.5bn that Cyprus took from Russia to revitalise its bank came to no avail because the money was actually spent on regular government expenditure Political madness of Christofias' government could not have been more palpable. In fact, this political brinkmanship made Cyprus poor and jeopardised its future. Therefore, its banking crisis did not come out of the blue. The health of many Cypriot banks deteriorated at an alarming pace, almost meteoric, and beyond any easy or quick redemption. Situation is so bad that most banks are today in desperate need recapitalisation.

Cypriot crisis is certainly not a creation of the banks alone but is a collective crime perpetrated with criminal impunity by its parliament, business, bankers, unions and political parties. It seems that an entire nation was gripped by a suicidal madness and a stakeholder in pulling the country down into a gutter. Wrong politics, lack of vision and patriotism, rampant corruption, bad and weak governance and probably almost all other vices that escaped from Pandora's Box destroyed the country's social, economic and industrial mosaic beyond
any quick recovery.

Cyprus must now be asked to exit euro. It is clear today that neither Cyprus nor the PIIGS (Portugal, Ireland, Italy, Greece and Spain) nations can afford to remain euro members and neither should they be allowed any longer. Their, especially that of Nicosia, economic profligacy are too sinful to be condoned. Nicosia has lost the world's trust and no more should it be permitted to fail to repay the money it should have never borrowed.

Demetris Christofias has harmed Cyprus beyond assessment and sooner than later he will have to go. But will his exit from the country's polity redeem Cyprus? Barely! Because, Cyprus has been rendered moribund and most of the ill effects of Christofias' misrule will continue to haunt the nation for at least three more decades.

The author is the Opinion Editor of Times of Oman


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