12° Nicosia,
24 June, 2024

The heart of the ECB beats in Cyprus

The conference chaired by Christine Lagarde which included 19 Central Bank Governors promotes the country internationally

Panayiotis Rougalas

Panayiotis Rougalas

The visit of European Central Bank President Christine Lagarde for the second time in 2022 is undoubtedly symbolic. Aside from the fact that Cyprus is the first country visited by Central Bank Governors as part of the decision to visit a country on an annual basis to hold one of their meetings, two other interpretations emerge. On the one hand, the ECB President's relations with Cyprus and the current Governor of the Central Bank of Cyprus are undoubtedly healthy; on the other hand, it is also a sign that the ECB is keeping a close eye on Cyprus's banking developments.

Following Governor Konstantinos Herodotou's interest in hosting the meeting, it was announced that the meeting will be held in Cyprus. The ECB President had previously visited Cyprus in March at Mr. Herodotus' invitation, but her visit was not intended to coincide with a European Central Bank meeting. She may have been linked behind the scenes to the ECB's decisions on RCB Bank's fate, but RCB Bank's course had already been set many days before. Leaving aside the joint decisions made and the outcome of the RCB Bank issue, we can see that there was close cooperation between domestic supervisors and their European counterparts in dealing with the issue.  Something that bears no resemblance to the previous CBC administrations' relationship with the ECB. Unlike the handling of the Co-operative case and its break-up, the ECB left the matter to domestic authorities. The current CBC management and the ECB management have excellent relations. During an open discussion with the ECB President and the Governor of the CBC in front of students from public and private universities in Cyprus on Tuesday, October 4, Lagarde emphasized that "the two Governors share the same vision." She also called their relationship "excellent." As can be seen, the bar has been raised, and in situations where fine-tuning is required in the future, this cooperation between the current CBC and ECB will be beneficial.

Lagarde emphasized that "the two Governors share the same vision." She also called their relationship "excellent."

And vice versa

However, when we say that the bar has been raised due to the two sides' good cooperation, we should keep in mind that the ECB will keep an extra 'eye' on the banking developments in Cyprus. During the same open discussion with students on Tuesday 4 October, the ECB President stated that when she arrived in Cyprus in March, she was briefed on the country's economic environment on a broad scale by the CBC management. She went on to say that the briefing was primarily about the economy in general, rather than banks in particular because there was nothing specific to focus on at the time.  Lagarde most likely meant to say that the handling of RCB Bank had been done in the same way that the ECB would have handled it, so there was nothing to worry about. The two successive crises do not appear to have had a significant impact on bank balance sheets, but that does not mean that inflationary trends and accuracy will not have an impact. Cypriot banks should not rely on the CBC and ECB's good relations, as the RCB Bank example demonstrated what can happen to a Cypriot bank in just a few weeks. Possible acquisitions of Cypriot banks and occasional wooing may also fall under the same denominator.

All eyes are now on Cyprus

The spotlight is on Cyprus until the next ECB meeting on October 26, 2023, which will be held in Athens. The ECB Governing Council will meet in Cyprus on Wednesday, October 5, followed by an informal meeting on Thursday, October 6. According to the Cyprus News Agency, citing Bloomberg, Austrian central banker and ECB Governing Council member Robert Holtzmann stated that monetary tightening will be discussed at the Governing Council meeting in Cyprus. Furthermore, the Financial Times reported that the discussion on the ECB's balance sheet reduction will begin at the Governing Council meeting in Cyprus, with official announcements expected around the end of the year.

They will meet from Wednesday morning until around 7 p.m. on the same day, according to the schedule. The meeting hours on the following day, Thursday, October 6, will be shorter because it will be informal. The meetings will be held in Limassol, with governors from 19 Eurozone countries attending to discuss strategic rather than monetary policy issues. 

[This article was translated from its Greek original]

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