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Tuesday 16 January 2024

The Cyprus bankruptcy - The "before" and the "after" (part III)


In a similar situation, the British government faced a shocking devaluation of the Sterling pound during Liz Truss' administration, losing markets’ trust. What was the difference in that incident? Due to the danger of the Sterling pound to be plunged for good and for the long term and of course due to the danger of losing their seats due to the election that looked inevitable, they forced Liz Truss to resign.

The period of Liz Truss' administration brought to my mind the administration of Demetris Christofias in Cyprus, ten years earlier. As I assume, Liz Truss never heard of Demetris Christofias or ever paid attention to what happened to Cyprus ten years earlier. She just planned to increase the debt level of the United Kingdom that unfortunately for her had already reached the Ponzi levels, where nobody is willing to lend more. Liz Truss, even today claims that there was nothing wrong with her governance. Although, whoever has experience of Ponzi financing can easily understand and connect the practices of Christofias administration with what happened ten years later in the UK.

Those two financial crises prove the fatal mistakes of each private or public administration. Every administration claims to hire or appoint the best. Although, each administration hires or appoints based on friendly relationships or political benefits, translated as votes.. As a result, the administration is full of incompetent members or fraudsters that sooner or later create chaos. Cyprus is a perfect example. We all know that people in the public administration are appointed in exchange of votes and they cover fraud practices like money-laundering and in recent years the sale of passports to international criminals.

Mafia-State is a whistleblower evidence of what was happening during Anastasiades' administration. Anastasiades was repeatedly linked with international fraudsters and money-laundering practices that shaken the European community. Even worse, the whole European community infrastructure is designed in a pattern that one century ago led to the collapse of the “Latin Monetary Union” that today nobody dares to mention.

One hundred years ago, the European people had another monetary union that because of fraud, corruption and incompetence had to be left to collapse in silence.

As history repeats first, first as tragedy and second as farce, Greece was expelled from LMU from 1908 to 1910 and they faced the same pattern a century later. This time Cyprus was added to the story. When you spend all your (national) money, someone will have to loan you some more, in order to keep the (monetary union) illusion alive. But, just because a loan is always a loan, you are first out of the Union unofficially, but you are out a few years later, officially..

End of part III

Friday 12 January 2024

The Cyprus bankruptcy - The "Before" and the "after" (part II)


It was a sunny Saturday morning. I woke up and went on my weekly shopping route. Before that I went to withdraw some money from the ATM but my transaction was declined. It was really awkward, I knew that there were enough funds in my account, so I tried one more time. Transaction was again rejected. People in nearby ATMs faced a similar situation, as I could now observe. 

Suddenly my mobile phone rang. Sylvia Papamakariou, my Cyprus Green Party main liaison, informed me that Cyprus was bankrupt, banks were shut down and I had to go to our headquarters for a brainstorming meeting regarding the next day. It was the moment I could see in real time that “IT” happened once again, as Hyman Minsky wrote a few decades earlier. Unfortunately, in Cyprus nobody wanted to listen and nobody wanted to speak, even after it was too late.. That was the rule then, that is the rule now..

As the rest of the population were celebrating the Carnival period, mostly in Limassol, that first and then during the second weekend a team of experts were trying to develop scenarios of what to do, what to avoid and what to save. We then had no idea of the real corruption levels of Cyprus, we just assumed that something would and should change. Illusions as we realised later..

The corruption levels in Cyprus are huge and unfortunately almost everybody is involved. The huge benefits of the public sector and the politicians that form each administration were always coming from a financial alchemy. The savings of the Cyprus Social Security pot were immediately transferred to serve the Government expenses so every new expenditure and pay rise meant that there will not be any kind of safety pillow in case of any emergency. That means also that in case we needed to cover any kind of emergency like saving our Banks would be achieved only if our European partners were willing to lend us more money. And they had no reason for that since our Banking system ws another alchemy ; giving higher interest rates in order to attract more deposits and create new bonuses for the Bankers..

So, in a simplified analysis, if Cyprus were still having the national currency of the Cyprus pounds and each Cyprus pound was equal to 1 euro, that weekend we could agree to devalue our pound so possibly 1 euro could buy 10 Cyprus pounds or even 50. In such a period that the national economics are just reckless, the evaluation of the national currency is defined by the markets. Luckily, Cyprus was already in the Eurozone. That meant that our government was able to steal as much as they wanted, since the people would pay the debt in a future period. 

That’s a flaw of monetary unions that lead to their collapse sooner or later. Just to make it more relevant to the recent period, both Turkey and Argentina, two countries that have their own currency, observe the continuous devaluation of their national currency against others.

End of part II

Tuesday 9 January 2024

The Cyprus bankruptcy - The "Before" and the "after" [part 1]


The most common question I am repeatedly being asked, since I moved my base to England is :

“Why does a Cypriot decide to leave Cyprus for England? “

We all agree that Cyprus is an amazing place for vacations. Good weather, amazing food, quality amenities.. But how about living permanently and working there? Is it as good as England? For sure, it's not.. Let's see why..

Cyprus gained a very bad reputation during the recent years. What all investigations show is that Cyprus is linked to illegal activities like money-laundering and supporting financial crime..

I have no reason to disagree with those publications, at all. On the contrary, I was observing the pattern, at least fifteen years earlier. I started investigations, I verified what was happening and, even worse, I verified that what was happening couldn't change because of the corruption inside the core of the governance.

Let's observe a few details. Cyprus got bankrupt during 2013. The public treasury was empty, the two core banks collapsed and the third, most healthy financial institution went bust a few years later. Would we agree that it doesn’t sound like normal practice for anyone, anywhere? 

Let's get a little bit more specific. The public service was paid by funds transferred from the social security pot. The social security pot was permanently empty so there was no safety pillow for last resort purposes. Public sector was paid by Ponzi financing practices.

Same period , both Bank of Cyprus and Laiki Bank heavily invested in Greece, the rest of the Balkan peninsula, Ukraine and Russia. All those investments collapsed so both institutions needed recapitalisation. That was part of another Ponzi financing practice but unfortunately nobody dares to talk about Ponzi financing practices in Cyprus..

Since the problems were well known at least one year earlier, we were asked to make scenarios for the next day. Who were “we” ? During that period I was a member of the Cyprus Green Party, acting as Commissioner for Finance, what in the UK is called shadow minister. The exact same time I was studying my Master’s degree so I had access to all similar cases, worldwide. I personally developed a scenario where both banks were split to smaller pieces and sold to healthy institutions, more or less what the UK did during 2008 when they faced a similar situation.

I was amazed by the fact that nobody paid attention to my proposal so I developed my personal scenario for the next day ; a bank account with emergency funds that could be used in order to move to the UK when nothing could be saved..

End of part I

Friday 12 May 2023

The rules of instability periods..

It’s this period of the economic circle, once again so one more American bank went bust !

Fragility of the financial system is increasing all over the world, even in the United States.

And as experts predict, the party has just started.. We saw it previously, we see it at the moment, we will see it again, again and again. 

The pattern is the same and the mistakes also..

We currently have the United Kingdom in a situation between stagnation and flirting recession.

Inflation is still high and interest rates are getting higher and higher..

Leadership and management prove completely incompetent to fix anything,

like the previous circle turnpoints. 

Management in an important number of companies varies between below average and inexperienced, pushing the companies straight to the bottom..

This month, Cyprus celebrated 19 years since joining the European Union.

For me, personally it is a reminder of periods that a dream becomes a nightmare.

The European Union project , soon after, proved to be a huge failure.

Cyprus, Portugal, Italy,  Ireland, Greece and Spain flirted and danced with bankruptcy..

Citizens of Cyprus and Greece lost access to their deposits, seeing banks closed for weeks..

The most recent, political incident, the evacuation flights from Sudan showed the chaos of the so-called Union for one more time..

The time the European Union was designed I was studying for my Bachelor, with classes related to European integration, the stability and instability of the project..

The flaws of the system were part of my assignments and based on my experience even predictable.

Nobody paid attention to those assumptions, during that period.

Not even my professor believed that those assumptions would become reality soon.

A lesson I got years earlier, from the period I was analysing the Stock Markets is that whatever you see may not be accurate, whatever you analyse could change in a second, whatever you start investigating may show more than expected.

That period taught me that companies under strong leadership and management last longer than those with weak leadership and management, but all of them are fragile in some period of time.

So, the most valuable lesson of that period was that I learnt to make assumptions for the worst and be prepared for “IT”.

That applies to business and politics equally.

For those who heard of Hyman Minsky, “IT” happens..

During 2008 “IT” was related to the Minsky Moment.

The time that the flaws are exposed on the highest levels.

Both organisations (strong managed and weak managed)  face financial challenges and struggle to survive.

In addition both categories (strong managed and weak managed) are vulnerable due to political factors.

Based on my experience more that 50% of the companies I was related to, in the last thirty years, have gone bust not because of their management but because of politics.

If we examine the latest Greek drama, it wasn’t normal or expected for all those companies of the latest gilded period ( that all went bust ) to collapse due to internal factors of incompetence.

All those companies collapsed due to high debt and that high debt was connected with 

wrong political decisions affecting wages, social contributions and international competitiveness. 

If we look at Cyprus, the design was more or less the same like Greece but political fraud and casino economics were multiplied.

There was a huge party by the politicians increasing taxes and loans for their own benefit and looting the social security fund, in order to keep their wages and secret bonuses.

Similar models are followed by the United Kingdom and France and so many other countries. Based on what it’s published, British politicians benefit from their position and connections and that reflects to lower performance of the NHS and the quality of life for the less lucky. People and organisations pay the real cost by direct or indirect devaluations so recently French people realised that they have to work more years, in order to cover the gap that was exposed. 

Also valuable to note that in the long term Greece was not able to compete with Turkey, a country with similar resources and production but with continuous devaluation of their currency.

In the long term, Cyprus was not able to become too expensive because they would lose the British tourists that moved to the occupied Northern part or Turkey.

In the long term Greece should be tuned with Turkey and Egypt in order to look attractive instead of trying to be tuned with France or Scandinavia.

In the long term Cyprus should be aligned with the United Kingdom in order to seem attractive to British visitors.

First Republic bank was the latest financial player that faced devalued assets and had to close.

For me, the story is repeated from the period of Barings. Later, the story involved Laiki, Bank of Cyprus and the Co-Op bank.

Laiki and Bank of Cyprus, fifteen years ago, invested heavily in the Balkans, Ukraine and Russia.

For the periods they faced losses they needed fresh capital.

In the end of the period, both old and new  investors kept away so there was no white knight available.

The outcome was existing investors losing their investment, the closure of Laiki and a series of repeated recapitalization for Bank of Cyprus.

The Co-op banking system collapsed a few years later due to political games, fraud and incompetence.

That was the most healthy arm of the Cyprus financial system so the total collapse of the so-called Cyprus miracle was inevitable.

That was the arm that could allow the rest of the system to become healthy again!

During the same period of time I was investigating a money-laundering case, involving the University of Cyprus.

After two courts and relevant paperwork that were released, it was clearly shown that it was an inside job. Recently missing funds had to be announced. Ten years later!

Inevitably, Brexit followed. People wanted to take back control.

They already suspected or knew of similar cases all over Europe and they had to put an end to the joke.

They actually said that they preferred to see their taxes going for better causes than money-laundering.

And suddenly here comes downshifting to complete the movie!

People stopped being attracted to fake careers and immoral activities.

Imagine yourself, in a top corporate position covering bullying and sexual harassment.

Yourself, in a middle level position, having expectations that will not be achieved by working with below average colleagues.

Yourself, in an entry level position, knowing that if you continue in that organisation will sooner or later lose a few fingers or your hand because of the low levels of health and safety.

Active and professional recruiters are still wondering though, why new hires fail in two years time..

If we take these valuable  lessons we can eliminate the upcoming repetition..

BUT.. Are we willing to do that?

Definitely not. Human nature is not changing so easily.

In the best outcome, leadership could inspire but in order to do that you need to have genuine leadership.

Management could train, guide and allow excellence, but in order to do that you need to have already experienced managers with high standards set.

Strategy could put milestones for problem solving, but in order to do that you need people that understand strategy, monitoring and evaluation in depth..

Unfortunately, after three decades in the business environment, in several countries and positions, the most valuable lesson I got is that people tend to ignore and avoid crucial actions because it’s more convenient.

Inexperience is more and more widespread and sooner or later we will face another perfect storm. And for as long as we ignore and avoid doing our real job, we make the exact same mistakes.

Based on an assignment where I got a huge “F” , during my MBA studies,  in the end we will all do the right thing.

BUT..Based on history, it will happen after we follow every other direction. Never forget that !