Cyprus Finance Minister Sarris Quits After Brokering Rescue

Cyprus Finance Minister Michael Sarris
Cyprus Finance Minister Michael Sarris served as the chairman of Cyprus Popular Bank Pcl. Photographer: Simon Dawson/Bloomberg

Cypriot Finance Minister Michael Sarris quit amid a probe into the island nation’s economic crisis, leaving the government eight days after helping it clinch an international bailout to stave off financial collapse.

Sarris told reporters in Nicosia today he was resigning because a government committee had been set up to investigate the country’s woes, including his time as chairman of Cyprus Popular Bank Pcl last year. His replacement is Labor Minister Haris Georgiades, who will be sworn in at 9:30 a.m. tomorrow, according to a statement from the president’s office.

Sarris, 66, announced his decision as the Cypriot government completed talks on the terms for the aid with the so-called troika of officials representing the International Monetary Fund, the European Central Bank and the European Union. The accord will be discussed at a euro working group meeting of finance officials on April 4.

“The negotiations were completed today with significant success in reaching the desired goals,” President Nicos Anastasiades said in an e-mailed statement.

Cyprus was granted two extra years, to 2018, to implement measures linked to its bailout, government spokesman Christos Stylianides told reporters. Sarris said that he couldn’t give an estimate for this year’s economic contraction.

Difficult Months

“This agreement is very important” as it secures financing for Cyprus from May, Sarris said at a press conference with Stylianides held before he announced his departure. “The next few months will be difficult for everyone.”

The Cyprus General Market Index fell 2.6 percent to 99.46 at the close in Nicosia. The exchange opened for trading today after shutting for more than two weeks. Hellenic Bank Pcl shares dropped 20 percent to 13 euro cents, the biggest decline since at least 1996. Cyprus Popular and Bank of Cyprus are suspended through April 15 in both Nicosia and Athens.

Cyprus reached agreement with euro governments on March 25 to impose losses on uninsured depositors at the country’s two biggest banks, Bank of Cyprus Plc and Cyprus Popular in return for 10 billion euros ($12.8 billion) of aid from the IMF, ECB and EU.

22-year Loans

Cyprus’s 10 billion euros of loans will have a 2.5 percent interest rate and be repaid over a 22 year period, state-run Cyprus News Agency said today, citing Stylianides.

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 said yesterday, citing a draft of the document.

Anastasiades established a commission today to investigate the reasons for the crisis, especially in Cyprus’s banking industry and identify those responsible. Sarris last year served as chairman of Cyprus Popular, which has been shut as part of the financial rescue.

Economists including Gabriel Sterne at Exotix Ltd. in London have said the government’s measures to secure the bailout will hurt the economy. The European Commission predicted before the rescue that it would shrink 3.5 percent this year.

“An early agreement on a program that gives Cyprus time to correct its fiscal problems can support business confidence and help to dampen the deep recession a bit,” said Holger Schmieding, chief economist at Berenberg Bank in London.

Capital Controls

Sarris said capital controls, adopted to avert a bank run after Cyprus agreed to impose the losses on deposits, should be lifted gradually to avoid destabilizing lenders.

Cyprus eased capital controls on some transactions today, according to an e-mailed copy of the third amendment to a decree issued on March 29 by the Finance Ministry.

The decree, which will apply for two days, allows financial transactions of up to 25,000 euros a day to be carried out without regulatory approval, compared with 5,000 euros previously, and payments of up to 9,000 euros a month to be made by check. The EU said it will continue to monitor the controls.

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