Former Central Bank of Cyprus (CBC) governor Panikos Demetriades and former Cypriot President Demetris Christofias are to be blamed for the economic crisis that forced Cyprus into bailout, ex-CBC governor Athanasios Orphanides claimed in a testimony before parliament on Tuesday.

Orphanides, currently an economics professor at the MIT in the United States, was called by the parliamentary watchdog committee to help pinpoint the reasons for Cyprus' worst ever economic crisis that sent the thriving economy of the eastern Mediterranean island to the brink of bankruptcy.

Cypriot President Nicos Anastasiades was forced to sign a memorandum with the Eurogroup and the International Monetary Fund for a 10 billion-euro (11.14 billion U.S. dollars) bailout as soon as he assumed power after presidential elections in March 2013.

The bailout agreement provided for a three-year economic adjustment program, still experiencing the effects of austerity measures.

Orphanides told the parliamentary committee that the former leftist government of Christofias had for years avoided taking mild measures to restrain public spending and secure international funding so as not to lose electoral support.

He also blamed the former president for accepting the write-down of the Greek debt decided by the Eurogroup without asking for safeguards for the Cypriot banking system, even though he knew or ought to know that it meant a loss of 4.5 billion euros overnight for the two leading banks alone.

Orphanides further accused his successor at the Central Bank, Demetriades, of allowing the now-defunct Cyprus Popular Bank, also known as Laiki, to continue drawing Emergency Liquidity Assistance (ELA) from the European Central Bank at a time it was evident that the lender was bankrupt.

He said that when he was replaced in mid-2012 Laiki was sound and had an ELA debt of 3.5 billion euros.

He claimed his successor allowed the bank's ELA to reach over 9.1 billion euros by the end of 2012, even though he was aware that the lender had by then become insolvent.

Demetriades himself told parliament in a previous hearing that he allowed Laiki to draw ELA on the instructions of the president because presidential elections were due in a few months.

Orphanides also accused the Central Bank of withholding important information from Anastasiades that would allow him to negotiate from a better position with international lenders and possibly avoid the bail-in, that is the recapitalization of Bank of Cyprus with depositors' money.

Under European Central Bank instructions, the lender turned 47.5 percent of deposits over 100,000 euros into bank stock to top up its depleted capital.

Source : XINHUA