Toxic mix of Religion, Politics and Business precipitated Banking Crisis

Posted by ew205 at Nov 13, 2017 09:47 AM |
New book by University of Leicester economist recounts deeper causes of Cyprus financial crisis

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A University of Leicester economist has described ‘a lethal mix of politics, religion, business and banking’ as the factors behind one of the world’s biggest financial crisis ever recorded.

Professor Panicos Demetriades, of the University of Leicester School of Business, served as Governor of the Central Bank of Cyprus, and was a member of the Governing Council of the European Central Bank from May 2012 until stepping down from the governorship in Cyprus in April 2014.

Speaking ahead of the Leicester launch of his new book entitled ‘A Diary of the Euro Crisis in Cyprus: lessons for Bank Recovery and Resolution’, published by Palgrave-Macmillan, he describes what led to the ‘unprecedented existential crisis for the euro.’

The study is a revelation- implicating church leaders alongside foreign oligarchs, property developers and politicians in the banking controversy.

Professor Demetriades said: “The bankers responsible for the crisis were closely connected to the government that took office in March 2013. Politically connected law firms played an important role in attracting Russian oligarchs and their money to Cyprus.

“Other leading politicians – also belonging to the ruling political party – had close links to property developers and large businesses that benefited from the easy credit policies that were in place before my arrival.

“On top of all that, the Greek Orthodox Church had large shareholdings in two of the three largest banks and the Archbishop took the side of the bankers who caused the crisis. Relative to the size of the economy, Cyprus was equivalent to the biggest banking crisis ever recorded.”

Professor Demetriades said that he faced many personal challenges in his role as Governor:

“One of my biggest challenges was that few people understood that the boom before the crisis erupted was an unsustainable bubble created by ‘hot’ (and easily reversible) capital inflows, over-borrowing and serious under-estimation of risks.

“I was very much an independent outsider.   With my background in teaching and research in banking and financial stability issues for over 25 years, I could easily see the situation for what it was.  In that sense, I was a natural ally to the European Commission, the European Central Bank and the International Monetary Fund, who put together the economic adjustment programme that actually saved Cyprus and the Euro.

“However, local media, encouraged by populist politicians and their backers portrayed me as the “Dragoman of the Troika”.  Populist politics, which is, of course, not unique to Cyprus can turn the truth on its head.  And that can be very disheartening when you are doing your best to save your country from a national catastrophe.”

Professor Demetriades added that political decisions had far-reaching ramifications:

“I was shocked by the extent to which the new government wanted to protect Russian oligarchs: they were prepared to tax small savers, including guaranteed deposits, in order to lessen the impact on wealthy Russians.  I’m still shocked that there are respectable academic economists who are still publicly stating that this option would have been preferable.

“Communication was our Achilles Heel. I wish we had more resources to explain to the public what was actually happening. But that wasn’t our top priority.  Avoiding financial meltdown was.  A year later, the IMF described the stabilization of the banking system - for which the Central Bank was responsible - a remarkable achievement.”

The book is available to purchase as an Ebook or Hardback on Amazon or directly from the publishers:

Professor Demetriades will be joined by Professor Charles Goodhart (LSE), who wrote the book’s Foreword, to launch the publication at the following event at Leicester:

Date: Thursday 16 November 2017

·     Time: 6.00pm - 7.30pm

·     Venue: Council Suite Rooms 1 and 2, Fielding Johnson Building, University of Leicester

Register: Please complete the booking form to register your attendance.


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