Too Bad for the Tax Payer: 'Socialising the Losses and Privatising the Gains – Part 2'

4 Pages Posted: 23 Jul 2018

See all articles by Savvakis C. Savvides

Savvakis C. Savvides

Queen's University - John Deutsch Institute for the Study of Economic Policy

Date Written: June 17, 2018

Abstract

In May 2, the author wrote an article with the title “Socialising the Losses and Privatising the Gains” where private sector indebtedness in Cyprus is addressed as the main economic problem impeding sustainable development to take place. However, the Government and the banks in Cyprus continue to define the problem as being the non-performing loans (NPLs) and the proposed solution as being any tools and legislation which will improve repayment but also enable the banks to take these off their balance sheets. It was argued that reducing the NPLs in this manner is treating a symptom of the disease. The article concluded that the government should not create a bad bank for the NPLs of the banks but rather should establish a reconstruction and development financing institution that will be able to provide solutions and spin back into the economy economically viable projects.

In this follow up article, developments with the selective sell-out of the assets of the second biggest and Government owned and controlled bank, the Co-Op Cyprus Bank, which had already received a recapitalisation of about €1.7 billion in 2013, it is argued that five years of mismanagement and wrong decisions by the Ministry of Finance and its appointees at the bank have a created a calamity bigger than the one Cyprus faced in 2013. Desperate to pass this bank on to the private sector and in order to cover its own tracks and responsibilities in this, they have entered into a give all agreement with another bank on the island. It is shown that the tax payer, as usual, gets the wrong end of the stick through this deal.

Keywords: Private Debt, Repayment Capability, Corporate Lending, Credit Risk

JEL Classification: D61, G17, G21, G32, G33, H43

Suggested Citation

Savvides, Savvakis C., Too Bad for the Tax Payer: 'Socialising the Losses and Privatising the Gains – Part 2' (June 17, 2018). Available at SSRN: https://ssrn.com/abstract=3198695 or http://dx.doi.org/10.2139/ssrn.3198695

Savvakis C. Savvides (Contact Author)

Queen's University - John Deutsch Institute for the Study of Economic Policy ( email )

Canada

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