Leaving eurozone will take Cyprus back 'centuries'

Finance Minister Haris Georgiades said Monday that leaving the eurozone would take Cyprus back "centuries" and insisted the island has no "Plan B" for reneging on a 10-billion-euro ($13-billion) bailout. Leaving the European single currency, Georgiades told parliament's finance committee, was "not up for discussion". "It's time to correct past mistakes. It's time to pay the bill. We can only spend what is in our pocket. There is no other option," the minister told the committee, which is looking into how Cyprus ended up with controversial and unpopular bailout terms. "It's a question of reality. Government instructions to the ministries will be to compile next year's budget essentially from scratch. Each item, each programme of the ministries must be explained and justified," Georgiades said. Addressing the committee earlier, central bank chief Panicos Demetriades blamed Cyprus's political leaders for the harshness of the terms of the bailout. Under the deal struck with the European Union, European Central Bank and International Monetary Fund, Cyprus will drastically reduce the size of its bloated banking sector, raise taxes, downsize the public sector workforce and privatise some state-owned firms. The terms of the final bailout, Demetriades said, was a "political decision" with the central bank having the "institutional responsibility of addressing the painful situation". "I understand there is anger and insecurity from the public. This is why I am here to present the facts with evidence, so everyone understands what really happened," he said. Demetriades has been widely accused of mishandling the bailout deal and of destroying the island's banks, amid a groundswell of demands that he resign. "The reforms are unprecedented for the Cypriot banking system and they were expected to cause a reaction," the central bank governor said. "I respect and understand the people and the difficulties they face." Demetriades also took aim at Eurogroup finance ministers, saying it was their idea to impose losses on all depositors in the island's banks -- large or small -- in an initial plan that was angrily rejected by Cypriot MPs. "Eurozone finance ministers wanted a levy on all deposits insured and uninsured," he said. European Central Bank chief Mario Draghi last week accused Cyprus of handling the bailout poorly, describing as "not smart" the initial plan to impose a "haircut" on all depositors, which rode roughshod over previous guarantees within the European bloc on balances up to 100,000 euros. Demetriades also said Cypriot officials had been caught wrong-footed when it turned out the amount of the bailout deal was 10 billion euros instead of the 17 billion euros they had earlier discussed with the lenders. "During the meeting of the Eurogroup on March 15, the finance ministers of the eurozone informed the president of (Cyprus) and the minister of finance that the funding was limited to 10 billion euros for the state and the remaining 7.0 billion euros would be found from the Cyprus market." He said when the Eurogroup agreed on March 4 Cyprus would get financing it was assumed it would get the full amount. "Everyone thought that the reference was to the 17 billion euros of the original (draft) memorandum, of which 10 billion euros would be given to the banks," he said.