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Cyprus updates Grexit plan

03/08/2015 10:15
The Cypriot authorities and the troika recently updated the action plan for handling a possible Grexit, despite the agreement reached between Athens and the institutions on July 12.

The plan provides for a series of measures to mitigate the effects of a possible Grexit from the euro on the Cyprus economy. The updating of the action plan was part of the discussions of the Cypriot authorities with the creditors during the last assessment, launched on July 14 and completed ten days later.

A senior finance ministry source told StockWatch that months ago the heads of the troika had suggested to the Cypriot authorities that they should have prepared an action plan composed of such measures so that Cyprus can mitigate the effects of a possible Grexit.

In this regard, the Central Bank of Cyprus has taken measures based on a specific plan to protect the subsidiaries of the Greek banks on the island, which has been largely achieved, a senior Central Bank official told StockWatch.

In Brussels there is a widespread view that, despite the agreement of July 12, the risks for Greece have not disappeared. Estimates for deep recession in 2015 in Greece together with the difficult measures that must be taken to meet even the lower fiscal targets, create doubt for the adequate implementation of the agreement.

Technocrats from Brussels warn that the reasons for a possible extreme scenario for Greece have not disappeared based on the prevailing uncertainty in the country at both political and economic level.

Athens seems to echo the concerns of the institutions.

“The risk for Grexit still exists” stated the other day vice president of the Greek government, Yiannis Dragasakis Dragasakis expressing hope that it will fall drastically with the adoption and completion of the agreement “which will make the public debt sustainable”.

The concerns of the institutions focus primarily on the reliability of the Greek government, as to whether it will implement what has been agreed with the international lenders because in such an event, as emphasized, a relapse will be caused with unpredictable consequences.

The creditors are allegedly seeking additional measures to disburse the first tranche of the €80 bn that Greece is estimated to need to meet the financing needs of the next three years.

Negotiations are expected to peak in the next two weeks, so that an agreement is reached before the scheduled debt payment to the ECB.

Already, the uncertainty about the developments in Greece does not seem to have left Cyprus unaffected.

The economic confidence indicator of the University of Cyprus fell significantly in July to levels below that of July 2014. Although the Center for Economic Research of the University believes that the trend is temporary, due to developments in Greece, the index shows a downward trend since early 2015, when the Greek crisis started to peak.