Free Exchange: Orphanides Interview

This is an interesting interview with Orphanides, covering the dynamics of the Cypriot situation over the period of the crisis – here.

11 replies on “Free Exchange: Orphanides Interview”

It’s an interesting interview, so thanks for flagging it. What makes it interesting is the fact that it shines a light into the minds of the Euro-bumblers.

Mr Orphanides, in particular, seems to suffer from a delusion which I’ve encountered in other bankers and bureaucrats: the notion that a risk doesn’t really exist until some pesky auditor or regulator requires you to recognize it.

He refers to “governments introducing credit risk (as was done in Deauville in October 2010) and at the prospect of considering defaults (as was done starting in late July 2011) in euro area sovereigns.” Towards the end of the interview this theme returns: “the blunder in Deauville with PSI that injected credit risk into sovereign government debt. The governments have created risk in what before last week were considered perfectly safe deposits.” [My emphasis]

Perfectly safe, my arse.

@Kevin Donoghue
I believe what Orphanides means is that when a nation state controls its own currency there is no sovereign debt risk. There is a currency depreciation risk and an inflation risk but no risk approaching 60% as happened to the Laiki depositors.

For example the US cranked up the printing press to fund TARP. Had they been in the EZ their big banks would have gone into receivership.

The New Europe is made clear in the following Q and A:

“The communist candidate was defeated in the February election and a conservative is now president. How did that affect the bailout?

The new president, Nicos Anastasiades, took over on March 1 and wanted to complete the adjustment program that had been delayed so long as soon as possible in an honest manner. Cyprus expected a programme with similar terms to those faced by the other countries. Instead, he was effectively ambushed by the other governments at the very first meeting of the European council that he attended and the associated eurogroup meeting. On March 15-16, the other governments confronted the new president and new finance minister with blackmail: either you haircut deposits or we shut down the economy; the ECB would cut off liquidity to the banks.”

@ JR

If I refuse to pay my ESB bill, they will shut down my electricity. Is that blackmail?

@Brian Woods II

There is absolutely no parallel between the question you pose and that of the blackmail of Cyprus by the EZ/Troika.

The Troika refused to take any losses on Greek bonds, thereby raising the Cypriot loss to ~5 billion.
That 5 billion would pay a lot of ESB bills.

Not only was it blackmail, but even after getting the money, (50bn is the equivalent in Irish terms), the blackmailers are going to destroy the Cypriot economy anyway.
A bit like taking the ransom and shooting the hostage anyway, just to make oneself understood.

I assume the Troika know this, as anybody with the faintest knowledge of the working of commerce would know that the sequestration of cash, used principally as working capital or as business cash reserves, will catapult the country into insolvency within months.

Next we will probably hear that ‘We are not Cyprus’, in the same way that we would not miss Feta cheese from our weekly shopping basket.

Ireland and Minister Noonan would do well to remember the message in old Irish school book poem
Go reidh, a bhean na dtrí mbó.

Axa probably hold a lot of senior bonds, we should recall when listening to BW2……

@ JR

I have obviously misunderstood the whole arrangement. I thought the Troika were giving Cyprus €10bn but you have corrected me, they are extorting €5bn.

I think BW2 is occasionally what the Germans call trotzig . I loved the comment about bungee jumpers . He probably couldn ‘t care less about axa . Most of the big insurers are in slim down mode and would prefer a dose of inflation.

@ seafood

trotzig – ADJ. defiant, truculent, stubborn, sulky, contrary, spiteful, strong-willed, forward. Do they mean me?

I don’t quite know how I feel about being stalked by Prof Lucey, enough to make one trotzig!

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