Cypriot President Nicos Anastasiades swore in a new finance minister today, the second of his six- week-old administration, after the government took more steps to ease banking restrictions in the island nation.
Haris Georgiades, 40, a graduate in economics from the University of Reading and a lawmaker with Anastasiades’s Disy party, was appointed the new finance chief at a ceremony in the divided capital of Nicosia, according to an e-mailed statement from the president’s office. He succeeds Michael Sarris, a former banker, who resigned yesterday to aid a probe into the collapse of the country’s two biggest lenders.
“The responsibilities are great and the expectations of our compatriots are even greater,” Georgiades said after the ceremony. “I will do my utmost for the good of the country.”
Georgiades takes over an economy bearing the euro area’s first capital controls to stem deposit outflows and amid uncertainty about how Cyprus will recover from the hit to its reputation as a financial center. His predecessor’s departure came eight days after the government clinched a bailout to stave off collapse after an initial abortive attempt to tax all savers at the nation’s banks led to protests and political turmoil.
“We know the impact on the economy will be bad,” said Lefteris Farmakis, an analyst at Nomura International in London. “It remains to be seen how quickly capital mobility and normal business can be reinstated so we can gauge how badly the economy will be affected.”
Cyprus was granted two extra years, to 2018, to implement measures linked to its bailout, government spokesman Christos Stylianides told reporters yesterday after the government wound up talks with the so-called troika of officials representing the International Monetary Fund, the European Central Bank and the European Union.
The accord, which details the fiscal terms and structural measures required for the 10 billion-euro ($12.8 billion) rescue, is due to be discussed at a euro working group meeting of finance officials tomorrow.
Before leaving his post, Sarris said that he couldn’t give an estimate for this year’s economic contraction and that the beginning of 2014 will be equally hard. The European Commission predicted before the rescue that the island’s economy would shrink 3.5 percent this year.
Successfully winding up the bailout agreement, pending since June last year, will secure financing for Cyprus from May, Sarris said. The government has 1.4 billion euros of bonds maturing on June 3.
Moody’s Investors Service downgraded Cypriot covered bonds to Caa2.
The agreement with the troika targets a primary deficit of 2.4 percent of gross domestic product this year and includes 351 million euros, or 2.1 percent of GDP, of expenditure cuts and revenue increases, the Phileleftheros newspaper reported on April 1, citing a draft. The rescue loans will carry an interest rate of between 2.5 percent and 2.7 percent and will begin being repaid after 10 years, Stylianides said yesterday.
Cyprus reached an agreement with euro-area governments on March 25 to impose losses on uninsured depositors at the country’s two biggest banks, Bank of Cyprus Plc and Cyprus Popular Bank Pcl (CPB), which has been wound down, in return for the international aid. The government had closed all banks to prevent deposit flight following the March 16 decision to levy a tax on all savers.
Cyprus eased capital controls on some transactions yesterday, the third tweak since a decree on the controls issued by the Finance Ministry. Banks reopened on March 28 under tight restrictions, including a limit on daily withdrawals of 300 euros per person. The EU has said it will continue to monitor the controls.
“It’s obvious the EU will push Cyprus to lift the restrictions as soon as possible,” said Farmakis. “In a monetary union capital controls are a bad thing if they are more than temporary.”
Sarris, who was chairman of Cyprus Popular Bank last year, submitted his resignation after Anastasiades, elected Feb. 24, established a commission to investigate the reasons for Cyprus’s banking crisis and identify those responsible.
Zeta Emilianidou was also sworn in today to replace Georgiades as labor minister. Anastasiades is due to meet with his new Cabinet in Nicosia after the ceremony.