THE PHRASES ‘toxic debt’ and ‘quantitative easing’ are now fashionable. What do they mean? The former means quarantining irredeemable bank debt to give banks breathing space so they can start lending again, and the latter means printing as much money as is needed to regenerate that lending. Hyperinflation or increased taxes to pay for it will be the outcome. Whichever of the two, we will become poorer. Our savings will be worth less… or worthless.
The question must be asked by savers and answered by our Finance Minister given the state of world banks and depositors’ increasing concerns over the safety of their savings: What percentage of saver’s deposits are protected by the Central Bank of Cyprus?
At the last reckoning I was told by the assistant manager of my Bank of Cyprus branch that deposit protection amounts to €34,000 per named account holder; in other words, if an account is held under two names, a total of €68,000 is guaranteed.
However, prior to the Christmas recess of the House of Representatives, a bill protecting €100,000 per named depositor was posed. This bill was not passed nor has it been mentioned since. Why not? Mr Charilaos Stavrakis instead pumped €700 million of government funds into our banks to avoid liquidity problems. This action in itself suggests our banks are in trouble.
While our government pontificates about the worsening economic climate (GDP is now expected to fall this year to one per cent instead of the 4.2 per cent predicted by Stavrakis last October) the island’s economy sinks. At this rate of fall we should be well into drowning by the summer.
We are a small island with a tiny economy that is reliant on tourism, banking and the construction industries, all expected to struggle for the foreseeable future.
Until the leviathan US economy is back on track, and we don’t expect it to be overnight, Cyprus must make provisions for the worst possible scenario, which is now looking increasingly like an economic slump as bad, if not worse by comparison to the 1930s, when banks closed their doors until the great President Roosevelt regained the confidence of savers. Banks cannot survive for long without savers, something we’ve ignored this past 20 years.
A securitising of saver’s deposits in the region of €100,000 per named depositor is of paramount importance if we wish to avoid a run on our banks. It is a Finance Minister’s duty to protect the savings of depositors. By not doing so he is encouraging a run.
I cannot trust a Minister who gets GDP growth rates so hopelessly wrong. Several Cypriot banks are tied into Greek banking and its economy. Greece, Spain, Estonia, Hungary and Ireland are already bankrupt and seeking support from the ECB. How long will it be before we join them?
It is time for positive action on his and our government’s behalf. Talking us out of a recession is just not good enough. We need action not words. We need a serious programme of public works and investment in alternative energy, schools, roads, hospitals and financial support of our agriculture and light industry. The Greek god Helios shines on us almost every day yet we stubbornly refuse his help. We are still blinded by easy and greasy oil, which is leading us down into an economic Inferno. We need what Barack Obama has promised his people. One-three-hundredth of it would suffice.
If our government dallies for too long our unemployment rate will rise to 10 per cent or more and not the five predicted. We are vulnerable because we rely on outsiders for our bread. And their numbers are dwindling fast. When the foundations are removed from a house it comes crashing down, and not slowly as Mr Stavrakis is suggesting, but suddenly and totally, causing mayhem and many casualties in its wake.
Economics it said to be an imprecise science. Given this past year of stock market turmoil, precision is now the order of the day. Who hasn’t had enough of these talks purportedly in search of reunification when neither side seeks anything of the kind? Who wouldn’t prefer to see our government taking firm action to withstand the worst effects of this mega recession? Government is meant to govern. It’s time we concentrated our efforts on our future economy and little else. If we don’t, they’ll be nothing left worth governing or reunifying.
The Russian rouble and pound sterling have crashed. The euro will come under fire soon. Everybody is buying gold. I am looking at fitting a wall safe. Under the mattress is just not safe enough.
Perhaps I should invest my gold cross and chain in alternative energy. At a $1,000 dollars an ounce I’ll own one half of one share… Hmmm? I’d better have a word with my wife and see if I can get her to part with her gold bracelet.
Copyright © Cyprus Mail 2009
