Widely respected ex-leader George Vassiliou says whole European system may suffer if corrective measures not taken
When George Vassiliou is worried that is a worrying thing. Widely seen as Cyprus's most effective president in modern times, the 82-year-old is now viewed, even by his enemies, as the voice of common sense.
Today, Vassiliou is so anxious about the state of the country he governed between 1988 and 1993 that he is worried saying anything at all will only make matters worse.
It's not just the partitioned island's membership of the European Union, which Vasilliou deftly negotiated back in 2004, that is now at stake, or the imminent threat of national bankruptcy. It's what happens next if Cyprus is to have a scintilla of a hope of restoring confidence in the financial services sector that, alongside tourism, underpins the tiny nation's economy.
"Cyprus is not just an island in the sun. We have developed a unique service sector which was based on confidence in the banking system," he told the Guardian.
"If that confidence is lost then you have nothing left. Everything that has been created will be destroyed, with formidable repercussions."
As such, he warned, it was wrong to brush Cyprus off as an insignificant outpost whose economic meltdown would not be felt elsewhere.
"They [world leaders] shouldn't think Cyprus is a small island and it doesn't matter if it banks collapse as they are nothing like Lehman Brothers. The difference is its two major banks are the banks of Cyprus as they hold more than 50% of deposits."
Vassiliou, an ardent supporter of the euro project, is the first to say the island's exit from the single currency would be disastrous. But, he avers, the decision to slap levies on depositors in the quest to save the Mediterranean island from economic armageddon had also been "a bomb to the foundations of the banking system".
And because of that it was now imperative that the EU and IMF, the architects of that decision, sent out the right message.
"The most pressing priority is to ensure that Cyprus gets help but also, more importantly, that the confidence of foreigners and depositors is restored in its banking system," he insisted. "If you take a decision that undermines that confidence you have to correct it."
While, he allowed, there was "no doubt" ordinary people should contribute to the island's financial rescue, the lack of foresight the euro group ministers had shown in announcing the measure had also been astonishing.
"Often when [officials] meet in closed rooms and under pressure with their calculating machines there is no cool thinking about what the repercussions of a decision will be," he said. "In this case the decision to impose an unprecedented tax or haircut on ordinary people and businesses. If, tomorrow, the services sector collapses, as a result there will be unemployment over 50% and total lack of prospect."
Barely two weeks into the job, the island's leader, Nicos Antasasiades, had been put in an almost impossible position when he attended last Friday's now notorious meeting in Brussels, said Vassiliou, the former British colony's third president.
"There was almost no time to look or study [the options]," he said. "They were placed under tremendous pressure and faced huge dilemmas, and it all happened between 2 and 4am before the decision was taken at the last moment."
With Cyprus's fate dangling by a thread, whatever the government now did would not be enough, said Vassilou.
"It can do nothing by itself. Without the support of the EU and IMF whatever it does won't be enough. "The issue was never to look to Russia."
Vassilou has always maintained that if Moscow were to step in, aid should be given solely within the framework of an EU-IMF financial assistance programme.
"We are not in the cold war days where you are either here or there."
Vassiliou, who governed as an independent with the backing of the communist Akel party, does not differ from many on the island who vehemently believe Cyprus has been unfairly treated. After all, he says, it would never have found itself in this predicament if its banking system had not suffered almost €5bn in losses overnight when Greece restructured its own debt load last year.
"They gave all this [bailout] money to Greece, Spain, Ireland and Portugal in the hope that it will help those countries start recovering but in the case of Cyprus they say there is a limit and they take a measure that undermines confidence in the banking and services sector" he said, shaking his head.
"With that the decision they are ensuring the destruction of Cyprus … an event, that if it happens, will have huge effects on the whole European system."
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