Former Central Bank Governor Athanasios Orphanides appeared Friday before a committee of inquiry looking into how Cyprus’ economy and banking sector nearly collapsed.

Orphanides told the investigative committee on economy that based on data for the economy of Cyprus, the country’s GDP and the unemployment rate will reach much worse levels than in 1974.

He said that since 2009 he had sent letters to former President Christofias warning him about the economy’s situation and recommending measures to reduce public spending, but he never received a response.

The previous government, backed by the left wing party AKEL, knew since December 2012 that Cyprus’ European partners would impose a haircut on deposits over 100,000 euro held at the country’s two largest banks, the Popular and the Cyprus Bank, Orphanides told the committee.

Orphanides said that Christofias’ Government, AKEL and the Central Bank of Cyprus “deliberately harmed” the banking system of Cyprus “to serve their political interests and minimize political cost” in view of the 2013 presidential elections.

“It was well known that should they applied for financial assistance they would need 7-8 billion euro to consolidate public finances. Would they handle it properly or minimize their political cost?” he said.

“Unfortunately the coordinate propaganda by the AKEL Government and the Central Bank harmed Cyprus and led foreign governments and decision makers to believe that they should rid Cyprus of ‘casino banks’”, he noted.

He added that Pimco, a company that carried out a due diligence report on the banks, inflated their capital needs by using a “more conservative” methodology, as it was described by the International Monetary Fund.

Orphanides said that this was exploited during the sale of the branches of the Bank of Cyprus in Greece. “For the shareholders, the bond holders and the depositors of the Bank of Cyprus the sale of the branches in Greece, on which the Central Bank of Cyprus had agreed without the consent of the legal owners is a theft of billions of euro” he noted.

President Anastasiades is due to testify on Tuesday.

An ongoing economic crisis has dried up funds. Under a 10 billion euro international aid package agreed in March, Cyprus closed one bank, Popular, whereas deposits with more than 100,000 euros held at the euro zone state`s biggest lender, Bank of Cyprus, lost 47.5% of their value, after being converted into bank shares.

 

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