Flashback: “Brown’s Bottom”
– Cyprus Finance Minister Sees Gold Sale Within Next Months (Bloomberg, April 17, 2013):
The Cypriot government plans to sell part of its gold reserves within the next months, a decision that needs to be approved by the country’s central bank, Finance Minister Haris Georgiades said.“The exact details of it will be formulated in due course primarily by the board of the central bank,” Georgiades, 41, told Bloomberg TV’s Ryan Chilcote in an interview in Nicosia. “Obviously it’s a big decision.”
Cypriot President Nicos Anastasiades is trying to unlock 10 billion euros ($13.2 billion) of loans from the euro area and the International Monetary Fund. To do so, he must come up with a further 11 billion euros through measures including a tax on bank deposits of more than 100,000 euros at the country’s two biggest banks, the sale of assets and gold and other tax measures.
An April 9 debt assessment by the European Commission said Cyprus had committed to selling about 400 million euros of “excess” gold reserves, prompting gold futures to fall the most in five months. In response to the disclosure, the Central Bank of Cyprus said it wasn’t considering a sale.
Central bank chief Panicos Demetriades said last week that the Cypriot government didn’t have the right to sell gold without his consent. He also signalled the administration hadn’t involved him in the plan. The Cypriot central bank manages the country’s gold stock, which amounts to 13.9 metric tons, according to the World Gold Council.
Georgiades said the government fully respects the independence of the central bank and insisted on effective cooperation. The country needs to look into how it got into this difficult situation and “obviously some decisions of the central bank will be examined” by an independent commission, he said.
“There is an issue and it’s actually a major issue,” Georgiades said. The government will do whatever is needed to ensure “smooth and effective cooperation between all decision- making authorities,” he said.
Anastasiades set up a commission this month to investigate the reasons that led Cyprus to the brink of a financial collapse.
Gold futures fell to the lowest since January 2011 on April 16 on increased investor concern that European governments may have to follow Cyprus in selling reserves, Goldman Sachs Group Inc. said in a report yesterday. The price of gold advanced 0.7 percent to $1,377.21 at 8:01 a.m. in London, gaining for a second day.
“I’m not really sure if the series of events is exactly matching with the recent movements in the price of gold, but I suspect maybe it was a contributing factor,” Georgiades said.
Cyprus, which became the fifth euro-area nation to seek a bailout in June, will do everything it can to avoid a second aid program, Georgiades said. “We know that we are in for a rough ride,” he said, adding that he couldn’t give an estimate for how much the economy will shrink this year.
Cyprus’s rescue program includes a forecast for gross domestic product to decline 8.7 percent of this year, compared with a European Commission projection for a 3.5 percent contraction before the bailout was agreed. Cyprus’s government spokesman said on April 4 that the contraction may reach 13 percent in 2013.
Cyprus reached an agreement with euro-area governments on March 25 to impose losses on uninsured depositors at Bank of Cyprus Plc and Cyprus Popular Bank Pcl (CPB), which has been wound down, in return for the 10 billion euros of loans from the IMF, the European Central Bank and the European Union. Georgiades said 7.5 billion euros of the bailout funds will be used to cover the state’s needs and 2.5 billion euros will go the recapitalizing Cypriot banks, excluding the two biggest.
The government closed all banks for nearly two weeks to prevent deposit flight following an initial decision on March 16 to impose a tax on all savers. Banks reopened on March 28 with strict capital controls on financial transactions.
“Capital restrictions will have to remain for a further period but we are determined to cooperate with the ECB in order to have the necessary liquidity provisions,” Georgiades said.
There is “no way” Cyprus will leave the euro area and the island nation has avoided a default, he said.
Slovenia, the first post-communist nation to adopt the euro, will try to sell 500 million euros of 18-month Treasury bills today as the new government attempts to convince markets it can avoid a bailout. Georgiades said he spoke to his Slovenian counterpart Uros Cufer and told him it’s important to take decisions in a timely fashion, before the situation becomes unmanageable.
“Indecision and lack of willingness to tackle our own problems in time led Cyprus to a very difficult situation and essentially left Cyprus and the new government which is in office for just a month and a half without any options,” Georgiades said.