Cypriot finance minister resigns amid crisis probe

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Michalis Sarris, Finance Minister of Cyprus (AP Photo)

Michalis Sarris, Finance Minister of Cyprus (AP Photo)

NICOSIA, Cyprus (AP) — Cyprus finance minister, Michalis Sarris, resigned Tuesday after less than five weeks in the job, to make way for a government investigation into how the country’s economy nearly collapsed last month.

President Nicos Anastasiades accepted Sarris’ resignation, which came as Cyprus finalized the details of its bailout with international creditors. Harris Georgiades, the former labor minister, will become the new head of finance.

Sarris, 66, was appointed to the position after Anastasiades’ Conservatives won general elections in February, days before the island was overwhelmed by its financial crisis.

The minister, a former World Bank official who helped negotiate Cyprus’ euro membership in 2008, has come under strong criticism for his handling of the bailout negotiations. On top of that, he was last year the head of Laiki Bank, one of the troubled banks at the heart of the country’s financial problems.

Sarris told reporters that he decided to step down to not compromise the work of investigators.

“To ease the work of this committee, I’ve thought that it would be appropriate for me to put my resignation at the disposal of the president of the republic, which I did,” he said. Anastasiades praised the move, hailing Sarris’ political sensibility.

Earlier Tuesday, the president appointed a panel of three former supreme court judges to investigate the country’s plunge to the verge of bankruptcy.

Cyprus has been given a 10 billion euro ($12.8 billion) bailout from its lenders after agreeing to overhaul its oversized banking sector flush with foreign deposits, including billions from Russia.

To secure the bailout, Cyprus had to agree that bondholders, investors and savers in the country’s two biggest banks — Bank of Cyprus and Laiki — take a hit. Laiki, the country’s second-largest lender, will be broken up with depositors with more than 100,000 euros ($128,000) taking major losses. Savers with more than 100,000 euros at the Bank of Cyprus could face losses of up to 60 percent on their savings as part of the rescue deal.

Sarris came out of retirement to take over at the helm at Laiki last year. The hope was that Sarris’s experience and contacts would help woo investors and money back into the bank, which had sustained huge losses on bad Greek debt and loans. Laiki eventually asked for 1.8 billion euros in government help — money that Cyprus didn’t have. That in turn, forced the country to turn to its euro-area partners and the International Monetary Fund for a financial lifeline.

Sarris, who had been critical of the previous government’s handling of the economy, quit from Laiki less than year after taking charge, saying that he was bowing to the government’s wishes.

Anastasiades himself has come under scrutiny over the crisis: a local newspaper has alleged that a company apparently co-owned by one of his relatives took money out of Laiki days before the country agreed to its bailout. The president Tuesday urged the judges to kick off their probe by investigating his family’s business dealings.

Meanwhile, Cypriot government spokesman Christos Stylianides said authorities were putting the finishing touches to the country’s bailout agreement with officials from the European Commission, the European Central Bank and the IMF — collectively known as the troika.

One of the conditions agreed was an extra two years, until 2018, to achieve a targeted budget surplus of 4 percent through spending cuts and tax hikes. The extension is designed to give more time for the Cypriot economy to recover. Government officials are predicting that the country’s economic output will shrink by 9 this year alone.

“Without doubt, completion of the agreement with the troika should have been done much sooner in much more favorable political and economic conditions,” Stylianides said. “Even with this delay, the situation is now normalized, stabilized and conditions are being created to restart the economy.”

Under the terms of the deal, the country has been granted 22 years — which includes a 10-year grace period — to pay off the 10 billion euro bailout loan at an interest rate of 2.5 percent.

Stylianides said the troika won’t have any say in how future revenues generated from the country’s newfound offshore gas deposits will be used.

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