Thursday, April 18, 2013

Accusations Around Capital Flight Defy Logic and Reason 

Much has been made in the news media here in Cyprus and abroad about the fact that in the weeks and days prior to the lock-down of the banks millions of euros were transferred out of Cyprus by both companies and individuals. Some media have even referred to the capital flight as "covert." President Anastasiades has been accused of passing on inside information.

For those outside of Cyprus, the facts listed above could raise the question whether inside information was passed around in order to protect the interests of certain people and companies-- if you do not know what we know here in Cyprus. 

Talks of levies on bank deposits dominated the news media and conversations of people here in Cyprus for months prior to its actual occurrence. It was a major issue in the race for the presidential election.

Additionally, much speculation around Cyprus' offshore financial sector further added to the possibility of a levy on banks. Specifically, with respect to the fact that there is a relatively high number of Russian deposits and Russians in Cyprus, with some accusing Cyprus of laundering money for Russian criminals. Other Europeans, who may face paying higher taxes in order to bailout Cyprus, and and who have perhaps grown weary of the prospect of continuing to pay for the financial failures of other EU members states, started saying that they did not want to pay for a bailout of Cyprus if by doing so they would be protecting the investments of Russian criminals. Demand that depositors in Cyprus contribute financially to the country's bailout began to flood EU news media as well.

The way that Merkel would handle the Cyprus bailout would likely figure prominently in her run for re-election later this year. Therefore treatment of the Cyprus bailout and specifically, Cypriot bank deposits, became of an issue of particular significance and sensitivity. (It should be noted that Cyprus adamantly refutes accusations of money laundering and has submitted to an audit by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) as agreed with the Council of Europe.)

During the presidential race, Anastasiades is famous for having said repeatedly that he adamantly opposed a levy on bank deposits. He was elected president 24th of February 2013. On the 13th of March Moody's slashed Cyprus credit rating to junk, further fueling the anxiety around the security of finances in Cyprus.
There is an elderly woman in Limassol who for a month before the lock down went to her bank every Friday and withdrew the entire sum of her deposit in cash and stashed it in her house, to return her money to the bank each Monday morning. When she was asked why, she said that her son, who worked in banking abroad, told her that if there would be a levy it would be imposed on the weekend when the banks were closed. 

There is a Spanish postdoctoral research fellow working at one of the universities here, in response to the speculation, two weeks before the lock down transferred  his savings of about 1,000 euros to Spain to avoid any levy.

There are those who did not transfer money out, not because they did not know of the possibility of a levy, but because they simply did not believe it would occur because the President was against a levy, no levy was imposed on Greek bank deposits under the terms of the Greek bailout, they could not believe that the banks would take their money, or various other reasons.

Two days after Moody's slashed Cyprus credit rating to junk, on the 15th of March Anastasiades met with Troika with the intent to secure a financial bailout, a meeting which was publicly known to have been scheduled for some time. The meeting lasted until the early hours of Saturday the 16th March, when, Anastasiades claims under great pressure, he agreed to put the controversial levy on banks before parliament. In an address to the nation Anastasiades stated that he is was against the levy but chose to support the levy imposed by Troika because since Troika insisted on the levy as a prerequisite for financial assistance, to refuse the levy would be to choose disorganized bankruptcy. Therefore he chose to make a decision that he knew he would be criticized for in an effort to gain financial assistance to Cyprus. You can read more about this issue in my earlier post in this blog of 19th March Why Anastasiades was Right to Put Controversial Levy Before Parliament.

Now, I ask you, if you had over 100,000 euros (the amount over which is not insured) sitting in a bank in Cyprus, in light of the above facts known to anyone who watches news, reads papers and has access to news sources (in various languages) and talks to other people, and you knew, as everyone here did, that Anastasiades was on his way to negotiate a bailout with Troika on Friday the 15th, would you, without any additional inside government information, have transferred your money out of Cyprus, just to be safe?

Can you honestly accuse those who did transfer money out of Cyprus before the Troika meeting on the 15th of March as having had inside government information?

Is the fact that people transfered their money out of Cyprus or out of the two beleagured Cypriot banks  evidence that Anastasiades passed around inside information?

Such claims are among the most ridiculous that I have heard recently.

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