Russian oligarchs could be Cyprus' Achilles heel

Former central banker Panicos Demetriades says Cyprus is serving Russian oligarchs at the expense of its credibility abroad while doubting the success story in a tell-all interview with Kathimerini.

Demetriades, who stepped down from the governorship of Central Bank of Cyprus (CBC) four years ago, spoke with Kathimerini’s Marina Economides and touched on a number of issues ranging from grey money and Russian investors to internal politics and raising questions over Cyprus’ success story.

Cyprus failed to learn its lessons

“There isn’t any success story, especially after Cyprus exited the [bailout] programme, on which stability up to 2015 was essentially based,” Demetriades said, adding that the exact same mistakes from the past were unlikely to be repeated because each crisis has a different set of circumstances.

The former governor, who is now an economics professor in the UK, criticised the government’s recent €2.5 billion deposit to the Cyprus Cooperative Bank, finding it “at least odd that the government takes on the role of the central bank.”

Dealing with the Russians

But the former banker believes the deeper causes of the financial crisis had to do with the business model in place, which gave way to an inflow of “grey money” from Russia and Ukraine.

Demetriades says the political elite in on the island failed to appreciate that serving oligarchs would not benefit the public or win automatically favours with the Russian government, citing Prime Minister Dmitry Medvedev who remarked in 2013 “the stealing of what has already been stolen continues” referring to the rescue plan for Cyprus.

The banker argues that Cypriots were naïve to expect financial assistance from Russia at that time.

He believes Cypriots are making a similar mistake today with a citizenship programme by which Russian high investors get Cypriot EU passports. Demetriades says there are “serious risks for Cyprus because it is perceived globally as an extension of money laundering by Russian and Ukrainian oligarchs.”

CBC independence and politics

Demetriades says he goes into detail in his book “A Diary of the Euro Crisis in Cyprus: Lessons for Bank Recovery and Resolution” about the business model in Cyprus as well as the political pressure he said he encountered in 2013.

“Bank executive boards should be staffed with people who have knowledge and experience in the banking industry and not be susceptible to outside pressure, political or otherwise,” he said.