Tuesday

6th Dec 2022

Cypriot finance minister resigns as crisis inquest begins

  • Michalis Sarris was Laiki bank chairman before his second stint as finance minister (Photo: consilium.europa.eu)

Cypriot finance minister Michalis Sarris has quit after concluding the country's €10 billion bailout package with the EU and IMF.

Sarris, who was swiftly replaced on Tuesday (2 April) by Labour minister Haris Georgiadis, had been chairman of the Cyprus Popular Bank (Laiki), which will be wound down as part of the bailout deal.

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Depositors with Laiki, the country's second-largest lender, are set to be among the biggest losers from the bailout terms, facing haircuts of up to 60 percent on savings over €100,000.

Sarris' spent a mere six weeks in his second stint as finance minister under the recently elected centre-right President Nicos Anastasiades. In his first period in office between 2005 and 2008, he had been the finance minister responsible for piloting Cyprus' application to join the eurozone in 2008.

The Cypriot government has also announced an investigation into the country's economic collapse, with reports suggesting that Sarris' role in Laiki's collapse had triggered his resignation.

In a statement, Sarris said that the impending investigation had played a part in his departure.

“I believe that in order to facilitate the work of (investigators) the right thing would be to place my resignation at the disposal of the president of the republic, which I did,” Sarris said.

President Anastasiades confirmed that he had received Sarris' resignation "with regret", adding that "I want to thank him."

Under the deal brokered by Sarris and President Anastasiades, Cyprus will have five years - one year longer than expected - to balance its books. The €10 billion loan, which is accompanied by a €7 billion contribution by Cyprus, carries a 2.5 percent interest rate, far lower than that offered to other eurozone countries in previous rescue packages. In return, Cyprus will be expected to slash the number of public sector employees and cut wages and pensions, alongside a programme of privatisation.

The European Commission expects the Cypriot economy to contract by 3.5 per cent in 2013. Earlier on Tuesday, EU statistics agency Eurostat revealed that unemployment in Cyprus hit 14 percent in February, two percent higher than the eurozone average.

There are also concerns that the imposition of temporary capital controls last week could lead to a severe deepening of the country's recession. Speaking with reporters following the conclusion of the bailout agreement, Sarris was unable to confirm how long the controls would remain in place.

Analysts fear that the restrictions, which include a €300 limit on daily cash withdrawals and strict controls of currency flows in and out of Cyprus, could follow the precedent set by Iceland.

In 2008, the Icelandic government imposed controls on all payments going in and out of the country following the collapse of their banking sector. Five years on, the restrictions are still in place.

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