Ioannis Kasoulides - Foreign Minister of Cyprus HARDtalk

days after it collapsed. Now it is Cyprus is enduring the agonies of a

financial and economic meltdown. Here is DVD bad news for the

Cypriot people, according to international economists, their

darkest days are yet to come. The island's economy is about to shrink

dramatically. Overseas investors are fleeing and the current

government is struggling to come up with a survival strategy. My guess

is the finance minister, Ioannis Kasoulides. Who and what will suit

side was? Ioannis Kasoulides, will come to

HARDtalk. Good evening.No one would dispute that Cyprus is in a

terrible mess. Do you acknowledge that you in Cyprus have no one to

blame but yourself? We have greatly to blame ourselves. It is true that

Cyprus has not taken the right decisions at the right times as

early as possible. That is as far as fiscal consolidation is

concerned. Neither has Cyprus taken the right decisions regarding the

expansion of the banking sector becoming bigger and bigger and

bigger. When the problem of the PSI came up, the first problem, by

being bigger than the GDP of the country, the country could not help

the banks. That was a fundamental strategic error? It is acknowledged

as a strategic error and an error of not taking the right decisions

because they were unpopular decisions. When the German Finance

Minister talks about your economic model being broken, being bankrupt

as a model, as an entire strategy, you would accept that? Yes, I think

I would accept this. We must now look for a more healthy model, an

economic model that is diversified. To add to what you have been asking

me, having accepted our responsibilities, I must express

the bitterness and the disappointment of the Cypriots of

the fact that the choice of the remedy was so abrupt and so brittle

that everything had to be connected to the banks. It had to be abrupt

going bust and threatening to take the entire economy with them.

initial decision, say we were given a three-year adjustment period to

bring down the size of the banks to the right size, to reform the

banking model, I think we would have avoided the serious problems

that, as you have said in your introduction, the Cypriots are

going to face. Enterprises are closing down. People are losing

their jobs. There are consequences. I advisedly began with his idea of

acceptance of responsibilities because I have heard you, you

president and other senior figures in the government saying things

like "It is not fair. Europe is treating us like a guinea pig in a

grand experiment. Europe is pretending to help but the price

they are asking is too high." All of the statements appeared to be

directed at pointing a finger at Europe than fixing your own

problems. There are two things. We have to fix our problems. This

should not stop us from expressing within the European Union as true

Europeans are criticism what has happened. Who could deny that what

has happened regarding the Beale in. For people to do not understand,

the Beale in his the people are part of the package. They are

taking a haircut of their own, to use a dreadful word. This is the

answer to the bigger question about the bank's in Europe that are too

big to fail. Money is always available to banks whose management

is reckless and take risks. An experiment was needed. This is the

Guinea Pig we are talking about. The experiment was using Cyprus. It

was used and now it has served as an example for the rest. I spoke to

Christine Lagarde, the managing director of the IMF the other day.

The first point she made was that Cyprus is not, absolutely not, a

template for what will happen in other European Union weaker

economies. She does not see it as a model. She also said one thing

which was interesting to me, she said that in terms of regret, the

regret she had about the whole bale out, Beale in process was that the

Cypriot government and the feelings of the Cypriot people were not on

the same page. She regretted that she had not understood that. We

your government, you put up an, demanded that the deal in the

involved even the small bank deposits, those was less than when

on the 1,000 euros and the Bank were involved, the IMF and the EC

eventually signed on to it. They believe that was a fundamental

mistake that begun with you President. I don't think that this

is true. That is what they say afterwards. The truth is that there

was a proposal which in all -- which involved bank deposits of

below 100,000 of a small amount, I think 3.5, which would have

appeared as a levy, a temporary Leddy to be transformed into shares.

This was your Government's idea? The shares was our Government's

idea. The proposal for 3.5 % below 100,000 was there because it was

yielding according to the proponents of the idea 2.5 billion

out of the five. Tape that was needed. With the spread, everybody

-- 5.8 that was needed. With respect, everyone said that you

president wanted the small depositors to take if you cut

because it was the only way he felt he could sell the -- the proposal

to the big depositors, many of them Russians, cook are going to take a

much bigger hair cut. You have spoke to everyone else. Now you're

talking to me. You are getting my version. Somebody around here is

not telling the truth. I do not know this is. Could you think it

is? And seeing what final. I know that a proposal came. They said

they looked at the figures and they said that many accounts were

divided so that they could go below 100,000. There was the argument

that below 100,000 was yielding 2.2 billion, a substantial amount.

want to talk about the future, not just to pass. Would you now accept

that that initial idea to make small depositors pay was a terrible

mistake. That? Yes or no? It was a mistake. If you do this, you have

to compensate those below 100,000. The state was not in a position to

do so. Next question, would you accept that the Cypriot government

still has not been entirely straight with its own people? I

remember sports people for your government in the immediate

aftermath of the deal assuring the Cypriot government that capital

controls would be temporary and are billeted within weeks. You we are,

many weeks after the initial deal was done, capital control is still

in place and there is no indication as to when it will be lifted.

know this decision, could asides about capital controls and

restrictions. -- who decides. The decisions are not made by sappers.

They are made by the Governor of the central bank. -- Cyprus. He is

in constant communication with the European Central Bank. I still

maintain that the restrictions which are gradually lifted are

going to be lifted altogether in the not-too-distant future. What

remains to be arranged before lifting them all together is to

decide about the exact amount of the haircut for the Bank of Cyprus,

which has not yet been decided. is going to be very substantial,

isn't it? The big depositors in the other bank have lost their money.

The Japanese. It may be that they will be finished in the back of

Cyprus, too. -- they are finished. There is a plan to save the Bank of

Cyprus. If you possibly can?Norma. The undertaking of the European

Central Bank is to do everything that is available in order to save

the Bank of Cyprus. I think the way that we are proceeding, the prudent

way, we're going to save this bank. Let's talk about some of the other

ramifications of this catastrophe for Cyprus. Again, is the

Government been entirely straight to the people of the country? The

initial Britain was Cyprus was put at around 7 billion which was going

to come from the dealing in of the bank deposits. That rose within

weeks, according to both the IMF and the you to another 6 billion on

top. -- the EU. This is money the Cypriots himself are going to have

to find. Did you know that extra 6 billion was going to be imposed on

you people? This money that you are referring to, if I understand

correctly, that is what Cyprus is going to be, its contribution...

is now would be 13 billion. This is not the case. It was decided that

they would be cuts in public expenditure, an increase in

taxation. All of these members -- measures had been agreed upon. This

is the 6 million that you are referring to. That sounds simple

but it is not. I am checking the Cypriot news wires. In the last

couple of days, there was a bill for additional skilled pay cuts in

the public sector. They have delayed an item looking at further

restrictions on public health care entitlement. Some of the very

profound and very difficult cuts and savings Thatcher government

that savings are due government would win to make have been

postponed. Parliament should have the right to examine thoroughly

what the Government is proposing. We respect this. Everything will be

in place as it was in December when Parliament, in an exemplary,

accepted all the conditions that were discussed. This is going to be

the case, hopefully, the stove. I think you should wait for this

decision. -- this time. In a weaker to, I don't think that this is

something that will happen. I sense your confidence and I am sure you

are aware of the depth of desperation, of Lange, of fury that

many ordinary Cypriot people feel. Rightly so. I do not think you have

said to you viewers that this parliament came to power on the 1st

March. This Government, off while in opposition, was the one that was

criticising all along the handling of the economy, the handling of the

banking sector and had to deal with this abrupt Beale in within 15 days

of taking power. I don't think you Will it actually helped to pile

blame on the last government? I have been looking at opinion polls

show that 95% of Cypriots think the entire political elite is corrupt,

is incapable of dealing honestly with Cyprus's current problems.

will not blame the feeling of the public opinion in Cyprus after what

is happening before. It has come to a point with the destruction of the

economic model. Instead of blaming each other, we need to get together

and regain the confidence of the people. Otherwise we need to go

home and have new people at the helm. It doesn't augur well that

the President said up an investigation panel to try and

figure out what happened, and two of the three judges have already

quit. The last one who quit has discovered that the law firm of his

sons were involved in some lawsuit against the Bank of Cyprus and

conceded that he should exempt himself. It is for reasons --

reasons of self-righteous that they have quit and not for any other

reasons. Let's just think about how Cyprus does get back to some sort

of sustainable growth. We spoke in preparation for this to one of the

world's most important and influential investors. He says, the

rescue of Cyprus does little to enhance the outlook for the country.

Without growth, sustainability is a major issue. And he asked one major

question - where is the job engine for a country that is now devoid of

any meaningful growth model? What is your answer to that? It is a

very difficult answer, but we have introduced a number of measures

that will stimulate the economy. Not measures coming from the

Government, but measures for stimulating the private sector.

That is where we put our hope because the private sector is not

the first time that has managed to succeed. We had a similar thing in

1974 during the Turkish invasion. The resilient was demonstrated the

them. Grit took over again. -- growth. But with measures and

incentives that will allow the private sector to get its activity

going - for instance, an effort is made by the banks to cut interest

rates. One of the major problems in the economy of Cyprus was the fact

that the high interest rate on deposits made people park their

money in banks instead of investing them or spending them in the

economy. Now the interest rates are going to come down and hopefully

that is one of the major stimulate us of the economy. Unit -- you do

not need to pour money from the government to stimulate an economy.

I'm very aware that they had the Cypriot Foreign Minister in front

of me. When we meant -- in which many outside observers had said

that Cyprus could reasonably and quickly changed the economic

outlook for your country is to us get serious about the normalisation

with the north of your island. By talking directly to Turkey. They

have offered you immediate summit talks. Why do not say yes? First of

all, they have not offered that. They want the usual talks between

the two communities. It has asked that say we should stop pretending

and the main problem is between Turkey and Cyprus. The way that the

problem is going to be resolved is by talking directly to Turkey.

Secondly, do you think that it is right for Turkey at this moment to

be perceived that it is feeling a weakness and take advantage of this

weakness for its own benefit? is the language of dignity. It is

the old thinking. What we have seen his your country, in 2004,

rejecting a UN peace plan brokered by Kofi Annan. The Turkish side

accepted it. Over the most recent negotiating period, you have seemed

disinterested in achieving peace. Surely now, given the fundamental

country faces, it is time to change the language, changed the thinking

and really engage. The last thing the Cypriots would like to hear at

the moment is that all these economic problems that have taken

place was prepared in order to bring them a -- bring them or force

them into accepting a settlement that they do not like. You mention

the referendum... To a name like it more now. The ballot boxes bring

results debt one has to respect. Whether it is a yes or Rainow.

supple, let's talk about the tax. - - for example. It is wrong to

accuse people when they have taken the decision in a democratically

because they had the choice. They had the choice to say yes or no. I

have said yes. I am obliged to respect the decision of the people,

like any other democratic person. Circumstances have changed. If we

look at one other way Cypriots had hoped they might escape the

terrible crisis they face, they look at the potential of the gash

was -- gas reserves. There is no way they can be exploited

peacefully and successfully without a long-term peaceful stable

relationship with Turkey. I am surprised that in this action is so

easily acceptable. Dead turkey can dictate to another independent,

sovereign country, is acting legitimately according to the

United Nations Convention for the law of the seat, that Turkey has

the right to dictate what is going to happen about the wealth that

exists in the economic zone of Cyprus. Does it make any difference

to you that the EU, the commission, leading European politicians, all

want to see your government engage in a new way on the Cyprus problem.

Who said that we are not going to engage? Nothing I am hearing from

you suggests that there is any new thinking. You have not seen

anything yet. Let me tell you something - it is so unreasonable

that we say let us wait until October because now we cannot focus

on the efforts for the solution of the Cyprus problem as our primary

duty to our citizens. We need to put the economy in a way to recover.

Is it too much what we are asking? Why use Turkey insisting that we

should begin immediately? What is the reason behind this insistence?

It shows no sensitivity. It is not an enmity language, as you say.

am interested in the degree to which you put a great faith and

great store by the democratic voice of year and people. All of the

polls suggest that your compatriots are fed up with the road. In some

polls the majority want to get out time to lead. -- lead. A leading

economists says leaving the euro would greatly speed up Cyprus's

recovery process. Few believe that? No, I am against leaving the euro.

First of all because there is no alternative. The reason alternative,

obviously. You can restore the pound, you can devalue, you can

help your own tourism and real estate industry. You could persuade

your people and outside investors that there is a brighter future

with the Cypriot pound. I do not share this view. I considered that

by leaving the euro at the moment, our currency would be devalued. It

will give it -- the value to such an extent that a country that

depends entirely on imports of raw material petrol -- raw material,

petrol, medicines and infrastructure materials, then who