Cyprus Economy May Contract By 13 Percent This Year: Government
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The Cypriot economy could shrink by much as 13 percent this year, warned a government spokesman on Thursday, higher than a previous estimate, which took into account the affect of the EU bailout.
“The recession may not be 8.7 percent in 2013 – as is estimated – it may reach 13 percent,” Christos Stylianides told state television RIK; although he added that Cyprus could experience a recovery by as early as next year – if the correct measures and investments were introduced.
The Cypriot economy could shrink by much as 13 percent this year, warned a government spokesman on Thursday, higher than a previous estimate, which took into account the affect of the EU bailout.
“The recession may not be 8.7 percent in 2013 – as is estimated – it may reach 13 percent,” Christos Stylianides told state television RIK; although he added that Cyprus could experience a recovery by as early as next year – if the correct measures and investments were introduced.
Before the Cypriot crisis became evident, the European Commission had already forecasted a 3.5 percent drop in the country’s GDP. Yet with the nation’s financial sector set to face radical restructuring, economists, as cited by the Wall Street Journal, newly predicted a contraction of around 9 percent.
[quote]But while Cyprus will become the first eurozone nation to impose capital control on its bank accounts, Stylianides said that an exit from the eurozone “would be like jumping into the abyss,” promising rather to “create the conditions to have growth more quickly than the troika expects.”[/quote]Related: Cyprus-Troika Strike Last Minute Deal, No New Parliament Vote Required
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Meanwhile, the Central Bank of Cyprus has also launched investigations into why the Bank of Cyprus, the island’s biggest commercial lender, had bought so many Greek state bonds in 2009 and 2010. According to the New York Times, two senior executives at the Bank of Cyprus reportedly deleted crucial e-mail documents last year related to investments in Greek government bonds just before Greece’s international bailout in 2010.
The Bank of Cyprus is understood to have lost around 1.9 billion euros ($2.4 billion) after speculating in high-yielding Greek bonds from late December 2009 until June 2010. Bond investors were eventually forced to take a 75 percent haircut under the final terms of the Greek bailout, which was worked out last year.
In additional to a similarly misguided investment foray run by another Cypriot bank, Laiki Bank, the Cypriot financial sector took a total hit of 4.5 billion euros. That was more than Cyprus, with a GDP of 18 billion euros, was able to sustain; and the losses resulted in a near-collapse of the Cyprus’s banks, leading to the eventual bailout from the IMF, the EU and the ECB.
[quote]“Mass deletion of data appears to have been undertaken on the Christakis Patsalides (one of the accused executives) computer on 18 October 2012,” said the investigation report by Alvarez & Marsal, a financial consulting firm.[/quote]Furthermore Andreas Eliades, the other executive who was forced to resign last summer, had “wiping software loaded which is not part of the standard software installations,” the Alvarez report said.
Patsalides and Eliades were the former treasury department director and chief executive at the Bank of Cyprus respectively. Alvarez investigators found that the decision to buy the Greek bonds was based on a last gasp effort by the bank to generate profits as their loan book began to sour.
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Investigators also said that the bank, like others in Europe at the time, made use of cheap financing from the European Central Bank to make these bets. Consequently, the Bank of Cyprus bought the riskiest high-yielding bonds available and found willing sellers in banks eager to reduce their exposure to Greece.
