Government officials on Tuesday discussed the possible implications of developments in Cyprus for the Greek economy ahead of the anticipated return to Athens next week of troika envoys.
Finance Minister Yannis Stournaras briefed Prime Minister Antonis Samaras and the latter’s coalition partners on the outlook and met the leaders of the main opposition parties. According to sources, Stournaras set out three chief risks that Greece must avoid. The largest risk is of a bank run not only on the Greek branches of Cypriot banks – which were on Tuesday acquired by Piraeus Bank – but on all Greek lenders. Averting such a crisis is crucial to safeguard the recapitalization of Greek banks.
The second risky scenario involves the likely blow to the Greek private sector by the haircut on the capital of Greek businesses operating in Cyprus. The third risk – that of a worsening climate in the eurozone – is beyond Greece’s control but would have a negative impact on plans to privatize state assets and draw foreign investment and also on the geopolitical level if Turkey decides to exploit the temporary weakness of Greece and Cyprus.
Although the reverberations of the Cyprus crisis are of great concern in Athens, Greek officials must soon turn their attention to more concrete worries as troika envoys are due in Athens next week. Talks are set to focus on plans for streamlining the civil service and a new unified property tax. Greece must satisfy the creditors’ demands to secure the release of a 2.8-billion-euro loan tranche for March and a successive aid installment worth 6 billion euros.
There was continued upheaval in Cyprus on Tuesday, despite a foreign bailout agreed on Monday, as authorities struggled to prop up the troubled Bank of Cyprus and thousands of Cypriots protested in Nicosia against the conditions of the rescue deal. The country’s central bank governor, Panicos Demetriades, said “a superhuman effort” was being made to ensure banks in Cyprus open on Thursday as planned, noting that capital controls must be in place to prevent savers from emptying their accounts.
Reactions on the European level were mixed, with German Chancellor Wolfgang Schaeuble saying it was inevitable that Cypriots would face a difficult time but that their banks were “insolvent” and a restructuring was unavoidable. Luxembourg Prime Minister and former Eurogroup Chairman Jean-Claude Juncker struck a very different tone, saying, “We treated all Cypriots like bandits and gangsters.”