:00:10. > :00:16.-- 70s hits. Now it is time for HARDtalk.
:00:16. > :00:20.Greece appears to be inching closer to the eurozone exit door. If the
:00:20. > :00:25.Greeks leave, how far could the contagion spread? One country which
:00:25. > :00:28.could soon find itself in the eye of a financial storm is Cyprus,
:00:28. > :00:36.where the banks are paying a heavy price for their investment in
:00:36. > :00:41.Sarris, chairman of the Cyprus Popular Bank, and former minister
:00:41. > :00:45.of finance. A mountain of banking debt, an angry public, a weaker
:00:45. > :00:55.government, could Cyprus be the next domino to fall in the eurozone
:00:55. > :01:19.
:01:19. > :01:26.crisis? Welcome to HARDtalk. Thank you very
:01:26. > :01:34.much. As you watch the speculation about a quick exit from the
:01:34. > :01:39.eurozone intensified, do you have a growing sense of alarm in Cyprus?
:01:39. > :01:46.Absolutely. We are heavily exposed to the Greek economy. We have
:01:46. > :01:54.already paid a heavy price for an investment in bricks sovereign debt.
:01:54. > :01:59.More than any other country. -- in Greece. Our Bank has suffered a
:01:59. > :02:05.loss of 2 billion euros. It is the capital that we are looking for in
:02:05. > :02:11.order to go back to the 9%. In addition to that, we are looking at
:02:11. > :02:17.the possibility that the large portfolio that we have been Greece
:02:17. > :02:25.could become doubtful. It could create problems for us. As we tried
:02:25. > :02:33.to rebuild our capital base, and as we tried to reassure our investors
:02:33. > :02:36.that there are ways to insulate ourselves from the possible
:02:36. > :02:42.outcomes of a deterioration in the Greek situation, we are hopeful
:02:42. > :02:46.that we will be able to overcome. want to deal with the problems in
:02:46. > :02:51.your bank's balance sheet in a moment. But let's stick with Greece.
:02:51. > :02:59.Do you believe that a Greek exit from the eurozone is inevitable?
:02:59. > :03:06.Perhaps not. But it is a clear possibility. I think the Europeans
:03:06. > :03:11.are quite firm that they need Greece to stick to the adjustment
:03:11. > :03:15.plan, tough as it is. On the other side, the Greeks seem to think
:03:15. > :03:19.there is a way to stay in the eurozone without implementing the
:03:19. > :03:26.measures that they have to in exchange for the support that they
:03:26. > :03:32.are getting from the Europeans. Unless somebody blinks, this is the
:03:32. > :03:36.kind of situation that could lead to an unpleasant outcome. Though
:03:36. > :03:42.Greece has a history of going to the brink of disaster and then
:03:42. > :03:46.pulling back. So somehow I believe that they will find a way to stay
:03:46. > :03:52.with the eurozone, perhaps make some changes to this programme that
:03:52. > :03:57.has been agreed to, in ways that the result can still be what is
:03:57. > :04:04.expected, but bad some of the pain can be spread over a longer period.
:04:04. > :04:08.-- but perhaps. I rather like the understatement in your phrase, an
:04:08. > :04:12.unpleasant outcome. It is potentially a nightmare outcome for
:04:12. > :04:22.your own particular bank. Are you making active preparations to deal
:04:22. > :04:23.
:04:23. > :04:31.with the disaster scenario of Greece exiting the eurozone? Yes,
:04:31. > :04:37.it is something that clearly every responsible person has to plan for.
:04:37. > :04:45.There is not much one can do in terms of the tremendous amount of
:04:45. > :04:49.uncertainty, in terms of the fact of the large number of greens that
:04:49. > :04:56.had had their debt denominated in the euro, they will have to find
:04:56. > :05:03.ways to pay for it in to P t dated a drachma if that is the currency.
:05:03. > :05:06.-- depreciated. You have just described how much money you have
:05:06. > :05:12.poured into Greece, buying sovereign debt and in terms of
:05:12. > :05:22.private loans and investments. You are very exposed. Do you had we
:05:22. > :05:24.
:05:24. > :05:30.tell operation in Greece? -- do you have a retail. We have 170 branches.
:05:30. > :05:34.We have a portfolio of 11 billion, and deposits of about 7 billion. 6
:05:34. > :05:40.billion is being supported by deposits from Cyprus, which is the
:05:40. > :05:45.real problem. We are heavily exposed. As you said already, we
:05:45. > :05:52.had written of almost 2.5 billion in Greek sovereign debt out of the
:05:52. > :05:58.3.2 that we were exposed. Almost our entire capital was invested in
:05:58. > :06:04.Greek bonds. If you take all the Cypriot banks, something like 30%
:06:04. > :06:14.of the Cyprus GDP. Enormous explosion up by any standards. --
:06:14. > :06:18.exposure. The Greek President said yesterday, as far as he was aware,
:06:18. > :06:21.up to 800 million euros a day was being withdrawn in haste by Greek
:06:21. > :06:28.depositors who want to get their hands on the cash and get it out of
:06:28. > :06:38.the banks. Is that guy to affect your operations in Greece? What
:06:38. > :06:46.happens if there is a panic, if you have queues outside your branches?
:06:46. > :06:55.For the time being, we had deposits coming from Greece to Cyprus. To
:06:55. > :07:00.the Cypriot part of the bank. There is a deposit insurance scheme in
:07:00. > :07:06.place that can take care of part of the problem. I believe the great
:07:06. > :07:12.central bank is also making contingency plans to help every
:07:12. > :07:18.bank that is present in Greece. If this goes on for a long time, if 1
:07:18. > :07:23.billion is lost every day, then it is becoming a real challenge.
:07:23. > :07:28.close to that point are we? Are you seeing retail depositors in your
:07:28. > :07:38.Greek banks are lining up to get their money out of your branches?
:07:38. > :07:41.
:07:41. > :07:46.No. Under the circumstances, we saw a surprisingly high level of
:07:46. > :07:54.confidence for the small depositor. We are seeing some of the larger
:07:54. > :08:01.depositors who have better options and better mobility to really go to
:08:01. > :08:05.what they perceived to be a safer place, but by and large, we do not
:08:05. > :08:09.see the concept that you have outlined at that we had seen in the
:08:09. > :08:16.UK before, or elsewhere, where you have long lines of people demanding
:08:16. > :08:24.their money. For the time being, and I do believe we have time to
:08:24. > :08:30.address that issue. You have been disarmingly frank with me about the
:08:30. > :08:34.extent of the exposure. Would you agree with an economist, Dr Stelios
:08:34. > :08:44.Platis, who says that our banking sector will not survive, should
:08:44. > :08:50.
:08:50. > :08:54.Greece leave the euro? I think that is speculation. Our banking system
:08:54. > :09:04.has to survive. It is the cornerstone of our economy. As we
:09:04. > :09:08.talk to investors, they look at the prospects of the Greek economy,
:09:08. > :09:12.particularly in connection with the possibility of natural gas, the
:09:12. > :09:18.possibility that we do get assistance, we are hoping to get
:09:18. > :09:23.some assistance from the Hellenic Stability Fund to see us through a
:09:23. > :09:29.transitional period. It is going to be extremely tough, it is going to
:09:29. > :09:33.be unknown territory, nobody has experienced this before. But as we
:09:33. > :09:38.also look at the rest of Europe, this is something that everybody
:09:38. > :09:43.will want to see, even if it does happen, that it happens in an
:09:43. > :09:50.orderly way, so the idea does not spread that similar things can
:09:50. > :09:56.happen in Spain, Italy and Portugal. I admire your calm, but the truth
:09:56. > :10:00.is your bank is facing an immediate crisis. Unless you can find, as I
:10:00. > :10:04.understand it, up to 1.8 billion euros of new capital in the next
:10:05. > :10:10.few weeks, you are basically going to be looking insolvent. Where are
:10:10. > :10:14.you going to get the capital from? Your balance sheet is covered in
:10:14. > :10:24.cricket debt, which you are not going to get back, so who would
:10:24. > :10:24.
:10:24. > :10:31.want to invest fresh capital in your bank today? That is why our
:10:31. > :10:40.plan as we go forward include some sort of insurance of downside risk
:10:40. > :10:48.economy. Speaking in frankness, that becomes problematic because
:10:48. > :10:53.the guarantee comes ee comes ee comes government, which in turn is not
:10:53. > :10:59.really in a position to access capital markets. There is a clear
:10:59. > :11:06.possibility of going to the ESFS also, and asking for European
:11:06. > :11:12.support, we had also be able to get some long-term loans from Russia,
:11:12. > :11:18.so we had been able to access... what you are saying is very
:11:18. > :11:22.important. We know that you tried to raise more money in Russia and
:11:22. > :11:28.for the time being you have failed. I used sending a signal to the
:11:28. > :11:38.markets are saying that it is time for Cyprus to actually seek EU, IMF
:11:38. > :11:44.
:11:44. > :11:47.bail out money? We would try to convince people, that risky as it
:11:47. > :11:53.is, if they get some kind of Cyprus
:11:53. > :11:58.Cyprus government, and they do know that the Cyprus government, if
:11:58. > :12:06.necessary, can have access to the European facility, and we are
:12:06. > :12:10.talking about sums that by about a couple of billion euros,
:12:10. > :12:18.but that is something that I think built
:12:18. > :12:24.built around Europe, and although we decide to have -- we did not
:12:24. > :12:30.decide to had an accident, that is why we have a system in place.
:12:30. > :12:34.First we go to the private sector, if we do not succeed, we go to
:12:34. > :12:40.government, and if the government cannot do it, we go to the partners
:12:40. > :12:45.in the European Union. There is no way that your own government can
:12:45. > :12:49.handle the scale of the crisis. The truth is, you like Ireland and
:12:49. > :12:54.maybe Iceland as well, leave in a country that has allowed to the
:12:54. > :12:59.financial sector to get far too big, your economy is massively over
:12:59. > :13:02.leveraged, I believe to the tune of seven times the national GDP, and
:13:02. > :13:12.therefore it is way beyond the scope of your own nation to address
:13:12. > :13:13.
:13:13. > :13:17.this problem and offer the That is true. But remember, we are
:13:17. > :13:21.a service-based economy. There was no way we would have the
:13:21. > :13:26.flourishing of accounting and legal profession, the large number of
:13:26. > :13:31.overseas companies doing business through Cyprus, without the kind of
:13:31. > :13:37.banking system that we had. But Mr Sarris, the Icelandic government
:13:37. > :13:45.justified their actions in the same way. How, as finance minister in
:13:45. > :13:53.the good years, and now as the boss of Cyprus' second biggest bank, how
:13:53. > :13:59.have you allowed yourself to become involved in this crazy economics?
:13:59. > :14:06.First novel, during those years as finance minister, we ended up with
:14:06. > :14:11.a substantial surplus on the public sector side. -- first of all. We
:14:11. > :14:18.did our share. It is true that the private sector it thinks things can
:14:18. > :14:22.only go up. The banks, households, enterprises, the housing bubble.
:14:22. > :14:27.Tremendous capital inflows from Russia, that fuels the housing
:14:27. > :14:37.bubble, it gives the possibility for the bed sticky blending. We
:14:37. > :14:41.have sustainably higher growth rates of bank lending and bank
:14:41. > :14:46.borrowing. The music has stopped and there are not enough chairs to
:14:46. > :14:51.sit down. And you say the finance industry was good in your time but
:14:51. > :14:56.the fact is you allowed, through regulatory oversight, the banking
:14:56. > :15:00.sector in particular, financial services, to grow so big that there
:15:00. > :15:05.is no way the government could ever offered guarantees during the bad
:15:05. > :15:10.times. Yes, we have to accept collective responsibility. Remember,
:15:11. > :15:14.it was a period of low interest rates in Europe. A period of free
:15:14. > :15:18.capital movements. A period in which countries could not do
:15:18. > :15:23.anything different from other countries in the eurozone. In
:15:23. > :15:33.retrospect, we should have been more careful. The regulator that
:15:33. > :15:34.
:15:34. > :15:39.never imagined there would have been austerity of this kind. Those
:15:39. > :15:43.making the investment decisions allowed the profit for the year in
:15:43. > :15:47.question to cloud their judgement about the medium-term dangers that
:15:47. > :15:52.they were building by those decisions in investing so heavily
:15:52. > :15:57.in Greek government debt. Mr Sarris, I believe the Socialist minority
:15:57. > :16:01.government not so long ago ask you to return to the finance ministry
:16:01. > :16:05.and you were to -- refused. Is that because you have no confidence that
:16:05. > :16:09.the current site this government is not capable of delivering emergency
:16:09. > :16:17.measures needed to try to address the problems we have been
:16:17. > :16:22.discussing? My judgement was at the time that there were better suited
:16:22. > :16:26.people closer to the party, closer to the ideology, that would have
:16:27. > :16:31.been more convincing about what needed to be done. We have proof of
:16:31. > :16:35.that. The minister that took over last August was able to convince
:16:35. > :16:45.the government to take those measures their turf than I could
:16:45. > :16:48.
:16:48. > :16:52.have done, because I was already associated with saying to take care
:16:52. > :16:56.of the debt. It therefore would have been a repeat of the same
:16:56. > :17:01.message for me. But coming from a people -- coming from a person in
:17:01. > :17:05.that party, that was more convincing. But I wonder if you now
:17:05. > :17:11.fear, we have talked about Greece a lot already, that Cyprus could
:17:11. > :17:15.follow the Greek model, that is go into severe contraction, see rising
:17:15. > :17:23.unemployment are leading to social unrest and the rise of political
:17:23. > :17:26.extreme parties, meaning there is no consensus of a realistic way
:17:27. > :17:32.forward? Do you see that as a possible breakdown for your own
:17:32. > :17:37.country? We have started already. We have learned our lesson. We were
:17:37. > :17:42.late in taking measures but I think now the social consensus is
:17:42. > :17:47.developing, that tough measures might be a good alternative to the
:17:47. > :17:53.prospect that you just outlined. I am now convinced that we will take
:17:53. > :17:57.those measures that will get us back into fiscal stability and send
:17:57. > :18:02.a message of confidence to the private sector to consume and
:18:02. > :18:08.invest in ways that would create jobs. Our unemployment rate, high
:18:08. > :18:12.as it is, is still in single digits. So we are really far from this
:18:13. > :18:22.scenario that you have outlined. The fact that we are watching it
:18:23. > :18:23.
:18:23. > :18:28.unfold in Greece gives us some sort of comparison of what things might
:18:28. > :18:33.develop to unless we take the tough decisions that we need to take now.
:18:33. > :18:37.I wonder how you react to the former central bank governor,
:18:37. > :18:41.widely respected, Athanasios Orphanides, saying that before he
:18:41. > :18:47.left last year, he said that Cyprus is facing a state of economic
:18:47. > :18:54.emergency not seen since the war of 1974. Do you think he was
:18:54. > :18:59.exaggerating or was he right? think he was right. He was bringing
:18:59. > :19:06.a loud bell. He was outlining the possibility of something really
:19:06. > :19:13.developing into an unmanageable crisis. I think he has been able to
:19:13. > :19:17.convince a growing number of people and I think we are now on a page in
:19:17. > :19:23.which we are really taking some of the measures that we should have
:19:23. > :19:27.taken a long time ago. So I am confident that we are going to...
:19:27. > :19:32.We are not going to quickly get into the high growth rates that we
:19:32. > :19:36.have experienced before 2007. But I believe we will hover around zero
:19:36. > :19:41.for a while and we will gradually get the unemployment rate down. We
:19:41. > :19:47.have a lot of economic migration in Cyprus that has slowed down and has
:19:47. > :19:52.become also an outflow. We have a lot of people in the service sector
:19:52. > :19:55.that have weathered well. The accountants, lawyers, they have
:19:55. > :20:01.weathered the storm of the international economy much better
:20:01. > :20:06.than those countries that have to rely on goods... On primarily goods.
:20:06. > :20:11.Before the end, I want to turn to another challenge facing Cyprus. In
:20:11. > :20:18.a way, that quote about the state of emergency going back to 19
:20:18. > :20:21.raises this issue. That is, the relationship with Turkey. -- 1974.
:20:21. > :20:26.You have been trying to move forward the reunification dialogue
:20:26. > :20:36.with the north of the island, the Turkish Cypriots. Is that dialogue
:20:36. > :20:37.
:20:37. > :20:41.going nowhere? Yes, that is a fair assessment. We made a very serious
:20:42. > :20:46.effort. The idea of a federation was accepted. It would not have
:20:46. > :20:50.been a sensible thing to do on a small island. But if you have two
:20:50. > :20:56.people that need time to begin to get on with each other, again, we
:20:56. > :21:02.have to go through a period of a federation. With a sensible
:21:02. > :21:04.arrangements that we unified the economy and with the prospect of
:21:04. > :21:11.the national resources surrounding the island, we should have been
:21:11. > :21:17.able to do much better. -- reunify. For you talk about the national
:21:17. > :21:23.resources, wasn't it extraordinary impolitic after your government to
:21:23. > :21:28.begin a high profile exploration of oil resources off your coastal
:21:28. > :21:31.waters when the Turks called it that this? The Turks made it plain
:21:31. > :21:35.that in their view, there should be no exploration until the
:21:35. > :21:42.reunification deal had been done. Why did your government to that?
:21:42. > :21:47.Why not? It is... We are a sovereign country and we have the
:21:47. > :21:51.possibility to show that there is enough well for everybody. But the
:21:51. > :21:56.point is, this was not the message you were sending. By sending the
:21:56. > :22:02.drills while you were still in the middle of talks, you were saying,
:22:02. > :22:08.never mind the unification, we will exploit the oil even before
:22:08. > :22:15.reunification, as our own Cyprus resource. That is one way to look
:22:15. > :22:18.at it. Another is to say, here is a possibility that could give huge
:22:18. > :22:23.construction costs. There will be a challenge of convergence of income
:22:23. > :22:31.per capita. Let's join hands. We have enough resources for Turkey,
:22:31. > :22:35.Cyprus, Greece, Israel, the whole neighbourhood. We needed a little
:22:35. > :22:40.more magnanimity on the part of Turkey. The balance of power is
:22:40. > :22:44.very heavily on the side of Turkey. Now, this gives us the possibility
:22:44. > :22:49.to make some better alliances in the neighbourhood that perhaps will
:22:49. > :22:53.make this dialogue a little more balanced. And perhaps it will give
:22:53. > :22:57.us a better chance of succeeding. But most of our conversation has
:22:57. > :23:02.been about the terrible weakness of the Cypriot economy. We heard one
:23:02. > :23:07.Turkish officials say annexation of Northern Art -- northern Cyprus is
:23:07. > :23:14.still an option. Are you worried that Cyprus's current weakness may
:23:14. > :23:21.be exploited? -- cypress'. For yes, of course. It is not a very
:23:21. > :23:26.pleasant situation. It is also agrees that we have talked about. -
:23:26. > :23:33.- also Greece. But most Turkish Cypriots are also looking at the
:23:33. > :23:39.possibility of the benefits that will come from reunifying the
:23:39. > :23:44.island and keeping the peace deal going. There are threats concerning
:23:44. > :23:48.talking about annexation. But on the other side of the balance sheet