Cyprus should have applied for an EU rescue package in 2011 to avoid the harsh terms forced on bank depositors to ensure a lifeline, its central bank governor said Tuesday.
Panicos Demetriades said Cyprus could have secured better terms if it applied for a bailout soon after the Greek debt haircut in late 2011, which cost Cyprus banks an estimated 4.5 billion euros ($6 billion), rather than in July 2012.
"A request should have been submitted by the end of 2011 or early 2012 as it was evident that the banks were unable to secure the required capital and there were instabilities in the Cypriot economy," said Demetriades.
He said that when he was appointed in May 2012 he quickly realised that all efforts by the authorities were directed at avoiding a bailout deal.
"Each day that went by without an agreement put the survival of the island's two biggest lenders at further risk and jeopardised the provision of basic bank services to businesses and households."
Then president Demetris Christofias was reluctant to sign a painful bailout deal hoping that he could borrow the money from elsewhere, such as Russia.
Demetriades said he sent numerous written warnings to the government, copies of which he presented to the committee.
One, in October 2012, said the European Central Bank's board "sees a bailout agreement as urgent."
A month later, another said the government should complete negotiations as soon as possible because of concerns over the liquidity problems faced by one of the banks and the outflow of deposits.
It was left to the communist Christofias's conservative successor, Nicos Anastasiades, to sign a 23 billion-euro ($30.6 billion) package in March of this year that required a sharp budget adjustment, with taxes raised and spending slashed.
Included was a 10 billion-euro loan, for which international creditors also demanded the winding up of the island's second largest banker, Laiki, and a haircut on deposits over 100,000 euros in its largest lender, Bank of Cyprus.
The government had to close all the banks for nearly two weeks in March and impose draconian capital controls when they reopened, some of which are still in effect.
Christofias is to testify before the committee on August 22 and Anastasiades on August 26.