Sarris Says Cyprus Unsure How to Remove Bailout Capital ControlsEshe Nelson
The Cypriot government, forced to impose capital controls as part of a 10 billion-euro ($13.6 billion) international aid program, may struggle to find a way to remove them, the country’s former finance minister said.
In March, Cyprus’s euro-area partners and the International Monetary Fund granted Cyprus the bailout in exchange for measures including a tax on bank deposits aimed at shrinking the Mediterranean island’s banking industry. The euro area’s first capital controls were imposed after a two-week closure of all banks as investors and savers moved their money to safer destinations.
“It would have been I think much better to do something more traditional with Cyprus,” Michael Sarris said in an interview in London. “We had to impose a lot of capital controls and we don’t know how we will take them off.”
Cypriot President Nicos Anastasiades said last month that all restrictions on the movement of money would be removed in January. On Sept. 27, the Finance Ministry renewed capital controls on domestic banks for 28 days.
Following a first review of Cyprus’s progress in meeting the terms of its rescue, euro-area finance ministers said on Sept. 13 that the aid program was “on track.”
Sarris resigned as finance minister in early April, eight days after helping to secure the rescue deal to avoid financial collapse. He left as a government committee was set up to investigate Cyprus’s woes, including his time as chairman of Cyprus Popular Bank Pcl, the country’s second-biggest lender, which was absorbed by Bank of Cyprus Plc in the bailout.
The Cypriot economy, burdened by the terms of the bailout, won’t have “good years” in 2014 and 2015, Sarris said.
“We will clearly get into a worse situation than we are in now, particularly if growth remains anemic,” Sarris said. “I think our debt to GDP ratio could get near to 130 percent of GDP.”
The European Commission forecasts Cypriot gross domestic product to decline 8.7 percent this year and 3.9 percent in 2014. In the first review of the the country’s aid program, published last month, debt is seen peaking at 126.9 percent of GDP in 2015, and declining to 122.5 percent the following year.
Other troubled euro-area states should learn the lessons of the Cypriot rescue, Sarris said.
“People in the countries that will experience similar problems, where there will be questions on debt sustainability and difficulties in getting all of the needed money from taxpayers, will have every reason to believe that maybe there will be a result to the same phenomenon,” he said.