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NICOSIA, Cyprus — Cyprus finance minister, Michalis Sarris, resigned today after less than five weeks in the job, as the government begins an investigation into how the country's economy nearly collapsed last month.
President Nicos Anastasiades accepted Sarris’ resignation, which came as Cyprus finalized the details of its bailout with international creditors. Harris Georgiades, the 41-year-old former labor minister, will become the new head of finance.
Sarris, 66, was appointed to the position after Anastasiades’ Conservatives won general elections in February, days before the island was overwhelmed by its financial crisis.
The minister, a former World Bank official who helped negotiate Cyprus’ euro membership in 2008, has come under strong criticism for his handling of the bailout negotiations. On top of that, he was last year the head of Laiki Bank, one of the troubled banks at the heart of the country's financial problems.
Sarris told reporters that he decided to step down to not compromise the work of investigators.
“To ease the work of this committee, I've thought that it would be appropriate for me to put my resignation at the disposal of the president of the republic, which I did,” he said. Anastasiades praised the move, hailing Sarris’ political sensibility.
Earlier today, the president appointed a panel of three former supreme court judges to investigate the country's plunge to the verge of bankruptcy.
Anastasiades acknowledged the finance minister's resignation, adding that “Mr Sarris', decision to submit his resignation, for reasons of political sensibility in order to ease the work of the Investigating Committee, constitutes an example of a new mindset in Cypriot political life.”
Cyprus has been given a 10 billion euro ($12.8 billion) bailout from its lenders after agreeing to overhaul its oversized banking sector flush with foreign deposits, including billions from Russia.
To secure the bailout, Cyprus had to agree that bondholders, investors and savers in the country's two biggest banks — Bank of Cyprus and Laiki — take a hit. Laiki, the country's second-largest lender, will be broken up with depositors with more than 100,000 euros ($128,000) taking major losses. Savers with more than 100,000 euros at the Bank of Cyprus could face losses of up to 60 percent on their savings as part of the rescue deal.
Cypriots are in for a great deal of economic pain for many months. Sarris said 2013 would be “a very difficult year” for the country with conditions only improving well into 2014.
To forestall a run on the country's banks, Cypriot authorities imposed restrictions on how much people can take out of their accounts when they reopened last week after a nearly two-week closure to allow politicians to hammer out a bailout deal.
The restrictions — the first-ever imposed in the 17 member group of countries that use the euro — included a daily cash withdrawal limit of 300 euros and a cap of 1,000 euros in cash for people leaving the country . But in an attempt to kickstart spending, the Finance Ministry today eased some of the restrictions — including raising the daily business transaction limit not requiring Central Bank approval from 5,000 euros to 25,000 euros and allowing people to make check payments worth up to 9,000 euros a month.
Cypriot officials said they hoped the all the restrictions introduced last Thursday would be lifted in a month, but Sarris today said that he “couldn't predict the exact time period.”
Anastasiades himself has come under scrutiny over the crisis: a local newspaper has alleged that a company apparently co-owned by one of his relatives took money out of Laiki days before the country agreed to its bailout. The president today urged the judges to kick off their probe by investigating his family's business dealings.
Meanwhile, Cypriot government spokesman Christos Stylianides said authorities were putting the finishing touches to the country's bailout agreement with officials from the European Commission, the European Central Bank and the IMF — collectively known as the troika.
One of the conditions agreed was an extra two years, until 2018, to achieve a targeted budget surplus of 4 percent through spending cuts and tax hikes. The extension is designed to give more time for the Cypriot economy to recover. Government officials are predicting that the country's economic output will shrink by 9 percent this year alone.
“Without doubt, completion of the agreement with the troika should have been done much sooner in much more favorable political and economic conditions,” Stylianides said. “Even with this delay, the situation is now normalized, stabilized and conditions are being created to restart the economy.”
Under the terms of the deal, the country has been granted 22 years — which includes a 10-year grace period — to pay off the 10 billion euro bailout loan at an interest rate of 2.5-2.7 percent. The first disbursement of aid money is expected in May.
Stylianides said the troika won't have any say in how future revenues generated from the country's newfound offshore gas deposits will be used.
The government spokesman said other amendments to the deal include allowing part-time government workers to keep their jobs, to be funded by civil servants taking a pay cut; making it easier for debtors to pay off loans; avoiding a tax on dividends and affording some protection to Laiki bank pension funds.