The allegation: Cyprus received loans only on the condition that its banks sold their branches in Greece to a competitor in Athens at a fraction of their value. ThePressProject publishes exclusively in Greece the investigation of German journalist Harald Schumann for the newspaper Tagesspiegel.
Did the troika defraud billions at the expense of thousands of depositors in Cyprus?
As an experienced politician, Nicolas Papadopoulos is accustomed to difficult times. He has been an MP and head of the Cypriot Parliamentary Finance Committee for nine years. He is also head of the socially liberal Democratic Party (DIKO) so no one can accuse him of being a political radical. But when the 41 year old tells this story, his voice breaks and his fury brings tears to his eyes. “My country,” he says, “is the victim of a daylight robbery.” “They stole three and a half billion euros from us and gave it to a Greek bank.” “People’s life savings, the money our citizens saved for their retirement.” Now many will even lose their homes. “The troika and the Eurogroup decided this, and we were forced to agree since they had a gun to our heads ‘. It was “one of the biggest scandals in the history of the Eurozone.”
So did Eurozone Finance Ministers and officials of the European Commission, the ECB and the IMF perpetrate a billion euro robbery? It sounds absurd. But the allegation is based on facts and documents. They show that officials in Brussels and Frankfurt imposed a highly controversial agreement on the country, under the terms of which customers of the Cypriot banks lost three billion euros, which a Greek bank then received as profit. So far parliamentarians and the European courts have not dealt at all with this question, and one reason for this is that the Cypriot government does not dare to speak publicly. It is is dependent on the goodwill of the ECB and the European Commission. Now, however, hundreds of Cypriots have appealed to the European Court of Justice and the Central Bank of Cyprus intends to launch an investigation.
The road to the controversial agreement began with the economic collapse of the Republic of Cyprus in 2012. Until then, the small country of 800,000 inhabitants was one of the richest in Europe. With low taxes and flexible control mechanisms, the island had become a financial centre and tax haven. The wealthy from all over the world, though mainly from Russia, hid money from their domestic tax authorities in Cyprus, creating a strong banking sector in the country. The balance sheets of the three main banks, the Laiki Bank, the Hellenic Bank and the Bank of Cyprus, added up to eight times the country’s GDP. Glossy palatial banks and hundreds of luxurious law offices in Nicosia testify to that imported wealth.
The blow came in April 2012. The Greek debt haircut caused Cypriot banks losses of four billion euros, nearly one quarter of GDP. The government of former President Demetris Christofias provided support of 1.8 billion euros to the Laiki Bank, which had taken a particularly fierce blow. Soon after the government itself faced difficulties to refinance its growing debt. As previously in Greece, Ireland and Portugal, so Cyprus had to submit a request for a loan and negotiate with officials from the Troika. But Cyprus had no friends in the EU.
Michalis Sarris found this out the hard way. Sarris, who today is 67 years old, became the Finance Minister in 2013 under emergency conditions. The leftist government of Christofias had lost the election because of their lamentable management of the crisis. The new conservative president Nikos Anastasiadis and his Minister of Finance tried to save what could be saved. Sarris, who on a personal level is charming and cosmopolitan, is a veteran of the banking system. For 30 years he was at the World Bank, he had a background as Finance Minister, and he had experience of managing a bank in crisis. But he says that what was waiting for him in Brussels was a situation he had never thought would be possible.
On March 3, 2013, just five days after taking office, he went to Europe’s capital to negotiate the emergency loan. But from the very first meeting with his German colleague Wolfgang Schäuble and the heads of the Troika, he learned that there was nothing left to negotiate. “It had all already been decided” says Sarris. Yes, the Cypriot government would get credit to service its debts. But not a cent of that money could be used to cover the losses of their banks. Sarris was shocked. Without state aid, it was shareholders, creditors and ultimately customers that would bear the losses. Over the next fortnight, Sarris and the President of Cyprus argued that the loss of confidence would hit key Cypriot banks, and that the “bail-in” would be “economic suicide” for Cyprus, but their protest was ultimately futile.
Under pressure from the German government, the foreign ministers of the Eurozone wanted to turn Cyprus into an example. Chancellor Merkel promised that this time, unlike as in all other countries of the Eurozone “those who caused the problem would take responsibility,” i.e. those who trusted their money to ill-managed banks. In this case it was easy. The finance industry of other countries in the Eurozone had withdrawn their money, and German and French investors were not in danger.
So much the worse for clients of the Cypriot banks. Any balance above 100,000 euros went towards covering the eight billion in losses. But the punishment of Cyprus contained an enormous risk: Approximately one third of the turnover of Cypriot banks originated in Greece and therefore thousands of Greek depositors had their money in Cypriot banks in Greece. But if they too were forced to pay, ECB experts warned of a bank run in Greece that would lead to a collapse of the Greek banking system, a scenario that the ministers of the Eurozone and the troika definitely want to avoid. They had just given the Greek state 40 billion Euros from the ESM support mechanism to avoid the failure of banks that had become insolvent following the haircut.
Thus, the ECB and the European Commission devised an ambitious plan. They wanted to force Cypriot banks to sell their branches in Greece in order to guard the Greeks from the Cypriot shock. The protection of property, a fundamental right across the EU, in this case did not apply.
Upon assuming his duties Sarris knew nothing of this, although it had been planned for months. As early as January 2013, before the elections in Cyprus, a team in the ECB had examined the scenario of an “involuntary” division of the Cypriot banks. They had drafted an extensive memorandum, classified as “confidential” and “restricted” which they circulated to a select circle. In this group was a Greek lawyer who had close relations with a legal firm representing Piraeus Bank – a relationship that would subsequently prove controversial. The fearsome conclusion of the memorandum: If the Greek subsidiaries of Cypriot banks were sold at a price that takes into account all possible future losses, then the parent companies of the Laiki Bank and the Bank of Cyprus would be “technically bankrupt”. That is, a compulsory sale of this nature would crush the Cypriot banks.
Initially Sarris learned nothing of this, only receiving an ultimatum from the Eurogroup under which Cyprus would not get loans if Cypriot banks didn’t sell their branches in Greece. “We had to get out of the Greek market, immediately, even though this would usually take several months of preparation and the support of experienced investment bankers,” said Sarris. They gave him just twelve days.
The ECB immediately went about writing the necessary legislation. Under the guidance of then member of the ECB Board, Jörg Asmussen, the legal department created a law allowing the Cypriot Central Bank to take over the management of banks in crisis, and thus oblige them to sell their foreign branches. The law was presented to the Cypriot Parliament by the Greek legal representative of the ECB, whose script had been pre-prepared. However, as MP Papadopoulos remembers it, he “did not say a word” about the proposed mandatory sale of the Greek branches. This was fairly logical, since he would have been faced with the crucial question: at what price? In normal business transactions, this would be whatever the buyer agrees with the vendor. But in this case they weren’t even sitting at the negotiating table, because as a parliamentary committee noted later, “the Troika disagreed”. So it wasn’t the bank governors who went to Athens on March 9, 2013 to negotiate, but civil servants of the Cypriot Ministry of Finance and the Central Bank of Cyprus. Pulling the strings in Athens was the controversial but powerful governor of the Bank of Greece. George Provopoulos is particularly connected with Piraeus Bank and its Chairman, Michael Sallas, who he had previously worked under. The relationship was soon to bear fruit.
Under the auspices of Provopoulos, “the Greek side took advantage of our situation” said one of the Cypriot participants. At that time, the value of the banks (net asset value) was calculated by the Central Bank of Cyprus at nearly eight billion. But the Greeks offered only 500 million. Sarris says that when negotiations collapsed, the Eurogroup assigned the role of mediator to the former Competition Commissioner, Joaquin Almunia.
But then something strange happened. The supposed mediators did not seek any compromise but took the side of Greece. According to later testimonies to the Parliamentary Investigative Committee by executives of the Central Bank of Cyprus, the proposals of the mediators systematically underestimated the value of branches in Greece. As in the ECB’s earlier confidential report, they put forward the worst case scenario for possible future losses. Thus, the value of the assets sold was devalued by 3 billion Euros. Also, the sellers, .i.e the Cypriot banks, were forced to donate to the Greek buyer half of the required equity. When they were informed, the heads of the three banks directly rejected the problematic proposal. “Greece was the heart of our business” recounts Andreas Artemis, who was then president of the Board of the Bank of Cyprus. “Why would we sell it at a fraction of its value?” Even Sarris at first did not want to put his signature.
But the Eurozone finance ministers did not cate about the disputed valuation and left the Cypriot Finance Minister and his President Anastasiadis with no alternative. When the decisions were taken in Brussels on the night of 15 to 16 March, 2013, Cyprus had to accept not only the bail-in at the cost of the depositors but also the mandatory fire sale of the Greek branches. During the session, Asmussen even threatened to stop providing liquidity from the ECB, and that Cyprus would be expelled from the Eurozone. “That would have been an even greater disaster,” said Sarris. “So for us it meant, sink or swim”.
It took a week and another new meeting of the Eurogroup to crush the Cypriot resistance. After the affair ended, Cypriot banks were forced to sell their Greek branches for just 524 million euros. The buyer was Piraeus Bank. The Bank of Cyprus lost more than two billion euros, its total equity capital. That was the sole reason for its bankruptcy, as predicted by the ECB scenario as early as January. Laiki Bank also lost about a billion. As planned, the Central Bank of Cyprus put the two banks under emergency management and merged them, while depositors were forced to exchange approximately 6 billion euros with bank shares, which didn’t correspond even to one tenth of the value of deposits. Two-thirds of the losses were covered by depositors from abroad. But the remaining two billion belonged to ordinary savers, pensioners, pension funds, universities and companies, even if the account had the salaries of staff for the following month. The Cypriot economy then fell into a deep recession and thousands of people lost their jobs.
In contrast, in Athens, Michalis Sallas, head of Piraeus Bank, and George Provopoulos, governor of the Bank of Greece, had reason to celebrate. In the next quarterly statement, Piraeus reported a profit of 3.4 billion Euros, “from the acquisition of the network of Cypriot banks in Greece.” The Troika, too, had one problem less. Piraeus Bank Group, which until then was itself bankrupt because of the Greek debt haircut, was again solvent, and became the largest Greek bank overnight. The share price rose by 400%.
So did the troika collaborate with a Greek bank? Or was it coincidence? The ECB and the European Commission could answer these questions easily. But both institutions refuse to disclose any information. A long list of questions sent by the Tagesspiegel was not answered, in spite of the promises of the spokespersons. Thus it’s not only the MP Papadopoulos who doesn’t believe in coincidence. The lawyer Kypros Chrysostomidis also believes that the operations were simply “illegal”. Chrysostomidis has appealed to the European Court on behalf of 120 clients, most of them “ordinary savers” and is seeking compensation of 100 million Euros.
“It smells” says even the economist Stavros Zenios, member of the new governing council of the Central Bank of Cyprus. “I cannot judge whether it was corruption or incompetence” says Zenios. Therefore, it is urgent to carry out “a study at the European level.” “The case can not be left hanging over the European institutions without a resolution”.
This article by Harald Schumann was originally published by the Berlin newspaper Tagesspiegel and is translated and republished here with the author’s permission.
Translated by Alexia Eastwood
The Tagesspiegel article is based on the documentary ‘Troika: Power without control’ by Arpad Bondy and Harald Schumann, produced by ARTE and ARD.
The research for the documentary was conducted by Nikolas Leontopoulos and João Pedro Plácido.
Acclaimed journalist and author Harald Schumann is one of the few in Germany that did not accept the “national” narrative of the Euro-crisis dictated by the German political and economic leadership and repeated in most German media. He has put forward his alternative narrative and interpretation of the crisis in his articles for the Berlin newspaper Tagesspiegel, and also in two documentaries: “The secret bank bailout”, which has been awarded the highest journalistic award in Germany and the “Troika: Power without Control” which has just been screened by the Arte channel in France and Germany.
Schumann’s findings in the case of the Cypriot banks sale was the result of his research for his documentary about the troika. The Greek media of course, with few exceptions, didn’t even dream of mentioning it. The anti-troika reflex fades away each time the Greek business interests side with the ‘evil troika’, as here with Piraeus Bank.
The PressProject also here presents the reports drafted by the Cypriot authorities. Amongst them, the confidential findings of emergency research requested by President Anastasiadis on the role played by the political system and the Laiki Bank in manipulating the ” Cyprus Scenario “. This report was first published by the journalist and researcher Landon Thomas, of the New York Times.
At the end of this report you will find evidence of the control of PWC, internal documents of the CBC, etc.
We suggest that you read the report and the documents before coming to any conclusions . Sometimes the same facts can lead to different conclusions…
– Revealed: Confidential internal ECB document on Cyprus (Read memo ecb)
ThePressProject is publishing for the first time a confidential memo from the European Central Bank which, dated two months before the Cypriot crisis, describes what was to come in March 2013: the bail-in at the expense of depositors in the banks of Cyprus; the sale of Cypriot bank branches in Greece to a Greek bank, and the tragic consequences that this would have for Cypriot banks and Cyprus itself. It had all been pre-planne￼d.
By Nikolas Leontopoulos
The Press Project is exclusively publishing the confidential ECB memo which, two months before the Cypriot crisis of March 2013, describes and analyses what was to come.
The memo is entitled “Ring-fencing of Cypriot banks’ branches in Greece”, and is not a final version, but is marked ‘draft’. It is dated 27 January 2013, and is signed by its four authors from the Financial Stability and the Legal Services Directorates of the ECB. One of them is the Greek lawyer Phoebus Athanassiou.
So what does this confidential ECB document tell us?
Firstly, the bail-in, the solution that was ultimately chosen at the expense of the depositors of banks in Cyprus, wasn’t a last minute decision, but had been put forward and studied months before by Cyprus’ creditors. (This isn’t necessarily a bad thing. It simply shows that the creditors were pre-prepared and had formulated a plan for the Cypriot crisis before it peaked in March 2013. It also implies of course that some insiders knew what was going to happen beforehand.)
Secondly, the same applies to the option of selling Cypriot bank branches in Greece to a Greek bank. The scenario was studied and ultimately approved by the ECB months before it was finally applied, allegedly under the pressure of the downturn. Therefore, the justification of the European authorities that the sale to Piraeus bank was in such urgent circumstances that the price was a secondary consideration is belied by the existence of the ECB document.
Thirdly, the ECB memo analyzes to the letter the dramatic consequences for Cyprus should this solution be implemented. It was in other words known from the beginning that it would essentially spell bancruptcy and the dissolution of the parent Cypriot banks.
In detail: Τhe ECB note’s aim is “to provide the outlines of a road map for the separation (ring-fencing) of the Greek branches of Cypriot banks from their parent companies.»
So why was this necessary?
“The objective pursued by the proposed separation is to avert a deposit run in Greece in the event of (i) a default of CPB CY, or (ii) a bail-in of depositors in CBP CY. The risk that the bail-in of deposits in Greece could spill over to the domestic Greek banks and trigger system-wide outflows of deposits is high. In turn, the already weak funding position of the Greek banks would deteriorate and require an increase in ELA, in the worst case scenario beyond the capacity of the banks and the Eurosystem to counterbalance the outflows. Ring-fencing the banking activities performed in Greece by CPB CY is crucial to maintain financial stability in Greece’s fragile banking market.”
How could this be achieved? One solution would be the nationalization of Cyprus’ Greek branches, which would be against Cypriot interests but might be favourable for Greece. According to the ECB statement “The Greek authorities would have incentives to intervene and nationalise the branches to safeguard the Greek depositors if there is a risk of a bail-in.”
At the same time however, it was a solution that the ECB and the troika wanted to avoid at all costs. Essentially, the solution that was chosen – their sale to a Greek bank – looks a lot like nationalization to the extent that it was a unilateral decision of the troika without taking into consideration the will of Cypriot interests and citizens – a sort of coerced sale.
The ECB memo explains what was the only way to avoid the repugnant possibility of nationalization, in very explicit language: “The only authorities which can prevent the nationalisation are the Eurogroup and the EC/ECB/IMF, if they would make it clear that the disbursement of the Greek programme funds would be conditional on not nationalising the Cypriot branches.” In other words, if the Greek side were to go ahead with nationalization, the troika would cut their funding!
Having excluded nationalization as an option, the ECB memo analyzes three scenarios for the sale of the Cypriot branches: Voluntary, Involuntary 1 (triggered by a decision of the Central Bank of Cyprus) and Involuntary 2 (triggered by a decision of the Central Bank of Cyprus). One of the “main disadvantages” of the voluntary sale as opposed to the involuntary was that in the former case it was likely that; “creditors of the CPB CY, as a matter of Cypriot law, present a claim vis-a-vis the Greek bank which has acquired the branch”.And so they preferred the ‘involuntary’ scenario.
But voluntary or involuntary sale, in all scenarios the ECB confidential memo arrives at the same conclusion: “Both Cypriot parent entities would become insolvent as a result of this move.”
The ECB document also reveals that the bail-in scenario was at the centre of the discussions of Cyprus’ creditors long before it was applied as the supposedly urgent last minute solution. “The current state of discussions around the prospective programme for Cyprus suggests that some of the creditors would not be willing to provide funds for recapitalisation of the Cypriot banks and would require a bail-in of the uninsured depositors to be implemented instead.”
So what would happen in this situation? Almost exactly what did happen eventually: “The two banks would have to be resolved quickly leading to an abrupt downsizing of the two banks from the current EUR 67 billion to approximately EUR 24 billion of total assets. In this process, over EUR 17 billion of deposits (mainly coming from residents of non-EU countries, but also including some Greek deposits collected in Cyprus) would be frozen in the two banks under liquidation.”
The document also proposes that “the subsidiaries are divested by the Cypriot owners to, realistically, a Greek bank which could tap HFSF support in order to execute the acquisition,” effectively foretelling the series of events: The Cypriot owners ‘sold’ their branches to Piraeus Bank , which used HFSF funding to pay for the acquisition.
When the E.U. decided to crash the economy of a member state
The “Cyprus scenario” is back in the news in Greece because of another extortion: on the evening of February 20, the representatives of the Troika told Greek finance minister, Yanis Varoufakis, that if he didn’t sign a four-month extension of the programme of the EFSF mechanism to support the Greek banks, he would be forced to apply capital controls, and the country would be led to exit from the euro. But while we do not know all the details of the recent negotiations, that’s not the case with what happened in Cyprus.
By Costas Efimeros
The story that follows is based on a series of documents from the Central Bank of Cyprus (CBC), internal documents of the European Central Bank (ECB), including the document revealed by TPP, documents from international auditing companies, a confidential internal 40 page report requested by president Anastasiadis after the signing of the Memorandum, and 440 pages of findings of the Institutions Committee of the Cyprus Parliament following the deposit haircut (bail-in) of the Cypriot banks. The data gives us the big picture of what happened between 2011 and March 2013, when the Cypriot government signed a Memorandum of Understanding and was brought to the brink of economic collapse based on a programme of “salvation.”
Cyprus, with its 800,000 residents, was one of several tax havens in Europe along with Luxembourg and the Netherlands. The value of its banking system was 8 times greater than the GDP of the country and had swelled to this level because of the low tax rate and loose control mechanisms. The Cypriot economy was driven towards collapse for two reasons: a) because of high exposure to Greek debt and b) because of a bank: the Marfin Popular Bank, managed by Mr. Andreas Vgenopoulos.
Don’t mess with Europe
The documents we have show that the bank “was in a very difficult position because of bad banking practices and its exposure to the Greek economy” already in 2010. On March 14, 2011 the bank had a liquidity ratio of 16.55% in violation of the minimum requirement of 20%, while by the end of the year the rate had dropped to below 10%. So when Evangelos Venizelos, then the Greek finance minister, went ahead with the PSI haircut the bank wasn’t ready to face the blow.
In September 2011 the bank’s management calls the Central Bank of Cyprus for the first time and asks to be added to the ELA (emergency liquidity assistance) mechanism. The central bank asks the Marfin Popular Bank to submit a restructuring plan but the response received on September 30 is considered “incomplete” and “vague”. Central banker Athanasios Orphanides informs the then president of Cyprus, Demetris Christofias, and sends him the CBC’s assessment, according to which the bank is essentially bankrupt.
On October 25, 2011, one day before the PSI, Christofias calls an emergency cabinet meeting and announces his decision to nationalize the bank. This option is in stark contrast with the ECB’s recommendations but is within the ideological framework of the communist AKEL party. From the minutes of the meeting, contained in a confidential committee report, it seemed that Christofias did not want to use the the EFSF mechanism, having seen the devastating consequences of the imposed Memorandum in Greece. The decision to nationalize the bank marked the start of a real economic war whose collateral damage was the destruction of an entire economy. Europe was determined to teach a lesson about “democracy” in Cyprus.
A time of conflict
At the end of 2011, specifically 27 December, the ECB conducts the famous Stress Test. Today we know that the scenarios used were very optimistic, and constructed more to convince observers that the European banking system was strong, than to explore the real capital needs of banks. Even so, Marfin Popular Bank presents a capital shortfall of 1.9 billion euros. Immediately after the completion of stress tests, the Cypriot government prepares a bill for the acquisition of the bank’s debt.
Until that moment Europe had shown that the salvation of the banks was a top priority, but in the case of Cyprus, an effort had been launched to address the problems without using the EFSF mechanism, which european ‘partners’ did not like at all. The ECB reacted immediately to the bill, responding that the cost of the bank rescue would be borne by the state budget and that if a loan was granted by the Troika, this amount would be excluded. It concludes that the bill violates Article 123 of Cyprus’ accession to the EMU Treaty which prohibits monetary financing by the state. In other words, the ECB is saying that no other economic model than that of liberal capitalism can be applied within the Eurozone, regardless of the will of citizens. Sound familiar?
The Cypriot government ignores the ECB’s recommendations for the second time, and continues planning, but on the basis of the results of the stress tests. The actual needs of Marfin Popular Bank were of course much larger and getting worse by the day because of a strong capital outflow. The bank is now dependent on ELA funding.
On March 5, 2012 the government sends a request to the ECB for state recapitalization of 1.9 billion euros, who for the third time said no. This time Europe requires the integration of Cyprus in a memorandum and gives Cyprus a three day deadline to present a complete bank restructuring program (which is practically impossible), and for the first time threatens to disrupt the bank’s access to the ELA. The Minister of Finance receives the ultimatum and resigns the same day, stating health problems.
Finally at the end of May, after Christofias had first appointed in April a new governor of the CBC, Panicos Demetriades, the Cabinet decided to ignore the ultimatums of the ECB and approved the recapitalization of the bank. Mario Draghi is furious.
While the statements from Europe seriously aggravate the outflow of capital, Christofias made his final effort to avoid the Memorandum. He attempted interstate agreements with Russia and China, and in accordance with the internal documents available to us, tried to delay the announcement of the international firm Fitch’s assessment, which 3 days later demotes Cypriot bonds to the category of junk, thus closing automatically the funding from the ECB.
Christofias’ efforts to secure a loan of 6-9 billion from Russia or China fell on deaf ears and in July talks begin to include the country in a support program. On the 26th of the month, he gets the first Memorandum in his hands and rejects it immediately, stating from London where he was attending the Olympic Games that “we have a different assessment of the state of the economy.”
Instead of agreeing to the Memorandum, the Cypriot Government sends the ECB a new restructuring program for the Laiki bank drawn up by KPMG (the audit giant) which Draghi rejects in record time, refusing to accept it as proof of solvency for continued ELA funding of the Laiki Bank.
Eventually Christofias is forced to return to the negotiating table and after consecutive meetings, is finally on November 22, 2012 invited to Brussels to attend a meeting before the Eurogroup (this, also, will sound familiar) and is informed by representatives of the EU, ECB and IMF that if he did not agree with the Memorandum, the following day ELA funding to Cypriot banks would be cut. The same evening the President of Cyprus issues a statement: “After tough negotiations with the troika and always bearing in mind the difficult circumstances, we are very close to signing a Memorandum of Understanding (MoU) with the troika.”
Until that moment, the Troika had been discussing with Christofias the level of “reforms” to be undertaken by Cyprus, but not the loan agreement, with the justification that the evaluation hadn’t yet been completed by PIMCO, the international firm that had been tasked with the assessing Cyprus’s recapitalization needs. Still no one had understood that the Troika had decided for the first time to make individuals pay the cost of economic salvation.
Meanwhile, Europe is preparing. The EU summit takes the decision to ask the European Parliament to approve new regulation on the liquidation of credit institutions on the basis of an ECB proposal of July 2nd. The draft law, entitled “Consolidation of financial institutions”, which was also passed by Cyprus, essentially provided the legal framework for a bail-in. The aim was to deal with the legal problems concerning the sale of the Greek network of Cypriot banks to Greece, but also to prepare to recapitalize the banks. For the first time in two years, the night the legislation was passed, there was an immediate positive (if not enthusiastic) response from the ECB. However, the Cypriot MPs had not understood what exactly they were agreeing to.
As 2013 begins, presidential elections are approaching in Cyprus. In the last Eurogroup that the AKEL government would participate in, it was decided that the Memorandum would be signed by the new president that would emerge from the elections. The plan in the hands of Christofias is already too heavy for the island but nowhere describes the involvement of the private sector.
The Presidential elections bring a change in power. The new President, Anastasiadis, five days after his election, participates in his first Eurogroup and learns to his surprise that the agreement includes a deposits haircut. Anastasiadis returns late that night to Cyprus and announces that the banks will not open the following day.
On March 19 Anastasiadis brings the memorandum to a vote in the Cypriot Parliament, which after an intense meeting, rejects it. Attempting a new negotiation, the next day the President announced that he would ask for less money from the Troika to reduce the haircut of deposits. While a conservative government was now in power, Europe intended to punish the country on the basis of a draft that had been prepared months ago. They delivered the ultimatum, according to which Cyprus had 48 hours either to magically find the money, or to sign the memorandum.
On March 23 Eurogroup met again, and after an 11 hour meeting agreed to loan 13 billion to Cyprus with even more onerous terms. The programme envisaged that Cyprus should raise 7.5 billion from a deposit haircut of its banks.
The Cypriot government, however, had a little problem in finding these billions because a day earlier the sale of the Greek network of Cypriot banks, together with their property, had taken place. They were sold to a Greek bank (Piraeus) whose chairman, as Reuters wrote, and as was submitted to the Institutions Examination Board of Cyprus, had borrowed via an SPV (Special Purpose Vehicle) more than a hundred million euros from the Marfin Popular Bank. His name is not unfamiliar: Michalis Sallas.
Piraeus Bank becomes the largest bank in Greece
Of particular interest in this whole affair is the sale of the Greek Cypriot banking network to Piraeus Bank. The multi-page conclusion of the Cyprus Parliament states that “the requirement of selling the network of Cypriot banks in Greece was made clear by our lenders for the first time during their visit to the island in the first fortnight of March 2013”. From the confidential internal ECB document revealed by TPP though, it is obvious that the design had begun months earlier, in fact as early as January. The ECB not only knew that Cyprus would be forced into a bail-in, but also foresaw the sale of the network of Greek branches “to a Greek bank.”
The ECB notes that the legal framework is not sufficient for what they want to do and so they change it. In late 2012, the EU Summit adopts the recommendation of the ECB for the restructuring of financial institutions and as mentioned above, manages to get the bill passed by Cyprus as well. This bill put a gravestone on the Cypriot economy, but no one had quite understood that yet.
In early March, Cyprus’s creditors inform the CBC of their intention to sell the network of branches in Greece, and also told them how it would be done (without ever asking Cyprus), as is described clearly in the confidential ECB document. The negotiation would be undertaken directly by the central banks of the two countries, and would be binding for the boards of the banks. Over 11 and 12 March, the Cypriots arrive in Athens, but consultations fail “because of the large gap in the valuation of the loan portfolios of the banks whose operations were being sold.”
This failure didn’t faze the EU, which intervened through DG Competition, preparing draft conditions of sale which included the valuation of the loan portfolios. This gave the Hellenic Financial Stability Fund (HFSF), an active role “as a provider of funds for the acquisition,” which after consultation with George Provopoulos of the Bank of Greece, went to Piraeus Bank. The plan provided that the cost of the sale would be shared by the buyer and the seller: the Laiki bank and Cyprus Bank were invited to contribute through the loss of several billion, while additional funds for the sale would be offered by the HFSF, and not Piraeus. The Cypriots reacted and eventually the second attempt also led to an impasse.
On March 15, 2013, during Eurogroup, they brought out the big guns. Cyprus was faced with blackmail for the fourth time in a few months. Under the threat of ELA funding to its banks being cut, they succumb. The date for a new meeting is set for March 23, and would bring together Piraeus Bank and representatives of the Greek and Cypriot Troika. Cyprus no longer had a say in the negotiations.
Finally, after a rather easy negotiation, it was decided to sell the network of Greek branches to Piraeus, which ultimately paid 524 million euros, after having previously agreed to deduct 450 million from the amount for ‘adjustment costs’. Piraeus assumed responsibility for all deposits on March 15, 2013, which according to the findings of the Institutions Committee of Cyprus amounted to 15 billion euros. The agreement, however, included some terms which were “creatively ambiguous” and allowed the bank in certain cases to choose which loans of the Cypriot banks they wanted to buy. The conclusion notes that “the terms of the sale were very onerous for Bank of Cyprus as they resulted in losses of around two billion euros” and goes on to state that “the Piraeus Bank’s profit for the quarter amounted to approximately 3.6 billion euros including ‘negative goodwill’ calculated at 3.4 billion euros and incorporating positive deferred tax of 540 million euros. “
On the conclusions of these findings, the Committee indicates that “many critical questions were raised around the acts of those who were involved” in the sale of the network to Piraeus Bank since “bank executives have allegedly received large sums of money in the form of loans from Laiki Bank, even with inadequate collateral” and that “the Committee expresses its deep concern regarding the selection of the bank and whether this was the most appropriate choice under the circumstances, and whether it was a random selection, or one made in the service of specific interests.”
The internal document published by The Press Project, together with the other documents we have, offer a very clear picture of how the Troika works. Until today those who claimed that the closed offices of Brussels developed plans for the salvation or destruction of entire economies were automatically considered populists and conspiracy theorists. But the evidence in these documents suggests otherwise. When the ECB, months before Cyprus appealed to the EFSF, wrote that “both Cypriot parent entities would become insolvent as a result of this move”, they considered this not as a problem that needed to be addressed, but as an achievement of the hard line that they had already decided to take.
At the moment the government of Greece is taking forward a number of bills that the Troika contests. Today’s revelations unfortunately only tell us a story that has already been written: Europe today is not being governed by the will of citizens, and employs blackmail to get what it wants. The Greek government, as well as the people who support it, will have to very seriously consider this, and its implications.
Ληστεία δισεκατομμυρίων με δράστες υπουργούς Οικονομικών;
Confidential report of Alvarez & Marsal for cyprus bank of Cyprus (σχετικό άρθρο στα ελληνικά )