July 19, 2024

Message by the President of the Republic of Cyprus, Mr. Demetris Christofias, 4 December

Fellow countrymen,

In these difficult moments that our country is going through, I turn to you in order to share the pain and worries that possess us all due to the impact of the global economic crisis on our homeland. Beyond, however, the effects of the global crisis and the crisis in the Eurozone, the situation in our country deteriorated mainly due to the action of internal factors.

Understandably every soundly thinking citizen wonders why we have reached the dire situation we are in today. Why we have had to resort to the Stability Mechanism. Why we have had to negotiate with the Troika and come to an agreement in principle which is admittedly painful.

I address myself to you to share with you what the dilemmas were and why we have had to take the decisions we did, albeit with heartfelt pain.

I need to make it clear that it was not our choice to resort to the European Stability Mechanism (ESM). Given the negative and painful experiences of the countries that resorted to the Mechanism and knowing the policies of the Troika, we tried our outmost to avoid that course of action. We have sought other sources of funding despite the criticism we were subjected to domestically for avoiding the European institutions, as some claimed.

Unfortunately, it has not been possible to secure the necessary funding. From the moment that one of the big Cypriot banks has not managed to get recapitalized within the time limits set by the European Union and faced the danger of collapse that would have swept the country’s economy into bankruptcy, we were forced to resort to the Mechanism.

Many citizens are asking themselves: Why should we pay for the criminal mistakes, oversights, perhaps even the abuses of some high level administrators of the banks, or why do we have to pay for the poor control of the banking system by the Central Bank and the former governor?

It is true that the decisions by the Administration of the banks and the poor control of the Central Bank of Cyprus have cost Cyprus many billions of euros, which in order to find we have had to apply to the ESM.

Specifically, about four billion euros are losses which the Cypriot banks have incurred due to their exposure to Greek bonds. An equal amount roughly is the damage to our economy from the transformation of Marfin Egnatia from a subsidiary in Greece into a Cypriot bank, which is something that the former governor of the Central Bank had approved. There are also losses from bad loans that banks gave in the Greek market. All this great cost unfortunately has to be met by the Republic of Cyprus.

From the loan which the Republic of Cyprus will get from the Stability Mechanism, up to ten billion will be allocated to support banks and only 1.5 billion to cover the deficits of the state for the next four years.

These numbers show that the great crisis has been caused by the banking system. The crisis has exacerbated structural weaknesses and distortions that had been accumulated for decades in the economy, thereby turning them into even larger and more pressing problems.
Regardless of the responsibilities of banks for the situation in which we have found ourselves, we could not let them collapse. That would be irresponsible and criminal for the country and the people. The collapse of the banking system would have dragged into destruction the entire economy and brought untold misery to thousands of families of ordinary people.

With our decision to support the banking system, we are supporting the economy of our country. Otherwise, the situation would be much worse than it is today and ordinary people would suffer much more.

It is my position that the investigations conducted regarding the banking system should be vigorously pursued to the end and based on their results blame should be apportioned and the culprits punished. The Government and I personally will do everything in our power to see that truth and justice will prevail.

Fellow countrymen,

From the moment that we have had to resort to the Stability Mechanism we knew that the margins for changes in the requirements and conditions of the Troika would be limited. This is why we set priorities in our goals and followed an assertive policy in our efforts to achieve them.

The negotiations with the Troika lasted four whole months. This fact makes it evident how hard we negotiated in admittedly very difficult circumstances and under very pressing dilemmas.

On the one hand we had to deal with the constant undermining of defamatory attacks against our country in the international press. On the other hand, inside Cyprus, we had to face continuous pressure to sign a Memorandum in haste. We had to deal with speculation whether or not the President would sign and the constant reference to the risk of default and the collapse of our banking system. I do not want to judge such ways of action at this time which requires the absolute unity of our people. But I have to emphasize that all these things created an atmosphere that deflected attention from the essence and weakened our negotiating position vis a vis the Troika.

We have come to the point of hearing from the lips of the most senior people in the European Union that it was rumoured that cabinet ministers were asking for the Memorandum to be signed and the President was refusing to sign. From whichever quarter this gossip had emanated, you understand that it was a terribly damaging slander which undermined our negotiating position.

We have exhausted all negotiation possibilities in an effort to achieve what we had set as core objectives. We aimed to maintain national control over the exploitation of hydrocarbon deposits. We managed that! The Troika Memorandum included provision for co-decision in planning and priority use of revenues from the exploitation of reserves for the debt repayment. Based on what has been agreed we ourselves will decide on our plans. The revenue can be used for investment in infrastructure and for the future generations. Naturally, a portion of the proceeds will be used to repay the debt. The exploitation of natural gas is a great prospect for our country and our people.

We aimed to avoid the privatization of profitable semi-governmental organizations. In the original Memorandum there was reference by name to semi-governmental organizations that had to be privatized. This was deleted and the potential for avoiding privatization was created. This arrangement does not satisfy us completely. But it is a springboard from which to continue negotiation in order to avoid privatization of specific semi-governmental organizations.

We aimed at preventing the abolition of the achievements of workers and the people. We did not accept the elimination of COLA and 13th salary, because conquests that are abolished are rarely restored.
We aimed for the staggering of the contribution of salaried employees so that the cost from the imposition of the Memorandum would be linked to the income level. We convinced the Troika, that had a different opinion, to accept this approach.

We aimed to save the Cooperative Movement which is a conquest and support for the people and finally we succeeded.

We aimed at rapid amelioration of the banking system, which caused the crisis. The responsibilities of the banks for the bad situation in which we find ourselves has been universally acknowledged. Namely by the Troika, the European Union and the rating agencies. If there was no problem with the banks, Cyprus would not need to turn to any Mechanism, regardless of any existing financial and structural problems.

We have never claimed infallibility. This however cannot be an excuse for blaming everything on the President and the Government. Especially on the subject of banks, according to an EU Directive, the sole responsibility for the supervision and regulation of the banking system rests with Central Banks and not with governments.

We must through the reform of our banking system prevent a recurrence of situations such as the one we are now experiencing. We must rapidly restore the banks to a position that will allow them to finance development and support the economy. The system must be restored to health, there must be better supervision and stricter control so that irregularities or abuses will cease.

Fellow countrymen,

I am the last person to attempt to idealize the Memorandum and attempt to whitewash things. In the Memorandum there are many measures which are truly painful. There are measures which under different circumstances I would not accept even to discuss. However, I have always concerned myself with what the next day would bring. What would happen if the banking system collapsed and the economy of the country was destroyed.

I fully understand that the implementation of the Memorandum will cause many difficulties to the citizens of the country. I fully understand the difficulties that will exist for everyone in the years to come. I share the concern, the uncertainty and the insecurity felt by ordinary people. Especially the unemployed, the vulnerable sections of society and the people on low salaries and small pensions.

All this time we have waged hard battles so as to be able to get out of the crisis as soon as possible and put our country back on the path of development and progress. Because only then will the sacrifices incurred by our people have meaning.

We gave this battle, as always, with a high level of responsibility towards the country and the people. These moments are not suitable for populism and words without any cost. This, though, is no time for scaremongering and negativity either. Populism and alarmism damage the country. Panic and acts of desperation lead to the disorganization of the economy and disruption of the social fabric.

These moments demand maximum unity. We should not forget that nothing is finished as yet. There remains the major issue of determining the amount necessary for the recapitalization of banks. There are still procedures to be followed in the European Union and its member states as regards the Memorandum of Cyprus. And the difficulties in these areas should not be underestimated.

It is for this reason that we must all act responsibly and seriously. This is why you should all raise ourselves to the challenge – political parties, organized groups and the media- so as not to cause more difficulties or give the chance to those who want to harm our country to succeed.

I just want to repeat what all the ordinary people of our country are saying: At this time we cannot afford to take into account personal interests even to the slightest degree. We cannot afford to take into account petty political and electoral considerations. At this time it is important to defend Cyprus, the survival and the future of its people.

I am confident that together, united, we can overcome again the difficulties, as we did after 1974, when our country was almost completely destroyed by the Turkish invasion and occupation. Then in only a few years we rebuilt our country and restored our economy. Through the hard work and sacrifices of us all.

We can behave equally responsibly now. We can again bring into effect another economic miracle soon. So let’s join hands.

Together, united, we can overcome the difficulties!