“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% of this year, compared with a European Commission projection for a 3.5% contraction before the bailout was agreed. Cyprus’s government spokesman said on April 4 that the contraction may reach 13% 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, 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.