Saturday 22 October 2016

Cyprus says it is prepared for any Greek fall-out

John O'Donnell and Michele Kambas

Published 29/04/2015 | 02:30

Greece’s prime minister Alexis Tsipras
Greece’s prime minister Alexis Tsipras

Cyprus is ready to react to any spillover from the crisis in Greece, the governor of the island's central bank said yesterday, adding that the two countries were decoupling in the eyes of international markets.

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It came as Greek Prime Minister Alexis Tsipras said that he would have to resort to a referendum if lenders insisted on demands deemed unacceptable by his leftist government, elected to scrap austerity.

Chrystalla Georghadji's written remarks, sent in response to questions from Reuters, underline concerns among Cypriot policymakers over Greece's future in the Eurozone.

She sought to distance Cyprus from Greece, saying that the close links between the countries' financial sectors had weakened considerably.

"Cyprus is no longer at high risk from financial developments and uncertainty in Greece," Ms Georghadji said.

"The path of Cypriot bond yields is diverging from the corresponding path of Greek bonds, reflecting the decoupling of the two economies in international markets."

Greek five-year government bond yields are trading around 15pc, reflecting the risk premium of the investment, while the nearest Cypriot equivalent, a bond maturing in 2020, yields less than 3.5pc.

She cautioned, however, about the psychological impact of problems in Greece.

"We remain vigilant and ready to react to any adverse spillover," she said.

Cyprus's financial sector was effectively ring-fenced from Greece in early 2013 when the island's banks were forced to sell off their Greek branches in order to protect Athens from turmoil in Cyprus around the time of the island's international bailout.

Now, with the Cypriot economy recovering and Greece sinking deeper into financial trouble, the situation has reversed.

Ms Georghadji's remarks echo those of politicians on the island, who want to reverse a perception that the two countries are inextricably linked, worried that Cyprus could be dragged down with Greece should Athens' finances collapse, forcing it out of the euro.

Business and cultural ties between the countries remain strong, and Cyprus's ability to withstand major contagion from any Greek default could test the resilience of the Eurozone.

Irish Independent

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