An amazingly impassioned statement on Monday from Bank of Cyprus on the island’s fiscal crisis, warning that a bailout is imminent. Rough translation of an excerpt via BankingNews.gr and Reuters:
By our inaction we are compromising the ability of the state to refinance and the consequences will be immediate and severe. There is an imminent threat of Cyprus joining the European Union Support Mechanism, with everything bad that this entails. In the long run, a country that is wounded, stigmatised and in economic difficulties will no longer be a financial centre for the region. The structure that we have built on for years now, which contributes so much to the Cypriot economy and is a key competitive advantage, will erode. The international competition is relentless.
Bank of Cyprus, as the largest lender to the economy, is anxious about economic developments which have deteriorated significantly since the tragic events in Mari [an old name for the Evangelos Florakis naval base caught in July's munitions blast]. At the same time, we state that we have the funds and ability to strengthen state policies, if these are characterized by efficiency and insight and turn the country from the crisis, leading to progress and prosperity based on a modern European economic model free from perceptions that our competitiveness and comparative advantages are eroding.
The exit from the current crisis requires that we have the virtues of those who prevented the economic decline since the invasion and occupation [of Northern Cyprus]. The gravity of the situation requires taking responsibility seriously, and above all with proper planning and teamwork. Our actions should be such as to clarify the markets that Cyprus can, and is determined to, take all measures necessary to manage its finances and continue to grow. Every day of inaction increases the problems and risks. We must act today, not tomorrow.
Impressive stuff, even if you believe that Bank of Cyprus’ Greece economic exposure is a problem in itself. For now, political crisis is overshadowing everything else and complicating how the economy can recover from the naval base blast. While the EFSF does hang heavy over Cyprus, it’s worth noting Article 122 of the European Union Treaty. It provides for financial assistance in the event of an energy crisis or exceptional circumstances beyond a country’s control (which may not apply given the government may have been aware of the munitions risk).
The Cypriot government has said that it doesn’t have to return to issuing debt until December. But judging from the above, if things don’t improve by then – it doesn’t look like Bank of Cyprus will be rushing to buy it up in the domestic market after all.
Related links:
Illiquid and loopy in Cyprus – FT Alphaville
Storm gathers over Cyprus – FT