GREECE leaving the eurozone would be a nightmare for Cyprus, and it won’t matter much what steps the government is currently taking to save the banks or the economy, experts agree.

On Friday parliament approved legislation that could part-nationalise the Popular Bank, the island’s second-largest lender and heavily exposed to Greek debt, in a bond-for-equity swap if attempts to raise €1.8 billion privately fail by a mid-year deadline.

It followed efforts by the bank itself to find investors who were however discouraged by the lender’s exposure to Greece and the uncertainty in the country.

The bank’s chairman Michalis Sarris said approval of the bill gave the lender room to “do what needs to be done to put the banking system back on a healthy base.”

However, whatever Cyprus does may not mean anything if Greece leaves the eurozone in a disorderly manner, dragging down with it other weak economies like Spain and Portugal and of course Cyprus.

Experts warn that such a development would be followed by chaos – banks and businesses will go bankrupt in Greece, unemployment going through the roof, shortage of basic commodities, to name but a few.

The real problem for Cypriot banks is not their exposure to sovereign debt but the loans given out to Greek businesses and households.

The three big banks have around €24 billion on their Greek loan books – Popular has €13 billion, followed by the Bank of Cyprus with €10 billion.

A Greek exit – dubbed Grexit - and a return to the drachma – dubbed Drachmageddon - is expected to hit Cyprus hard, if it happens, and reports on Friday said the EU was now ‘thinking about the unthinkable’ on that score.  

“We are now looking at the possibility that the large portfolio we have in Greece could become doubtful,” Sarris told BBC’s Hardtalk. He did say a Greek exit was not inevitable but “it is a clear possibility.”  “I think the Europeans are quite firm that they need Greece to stick to the adjustment plan, tough as it is.”

Sarris said the Greeks seem to think there is a way to stay in the eurozone without implementing the measures they have to in exchange for the EU’s support.

“Now unless somebody blinks, this is the kind of situation that could lead to an unpleasant outcome but Greece has a history of going to the brink of disaster and then pulling back,” Sarris said. 

His belief is that a way will be found for the country to remain in the eurozone with perhaps some changes to the programme “in ways that the result can still be what is expected but perhaps some of the pain can be spread over a longer period.”

The worst case scenario for Cyprus would be Greece exiting the euro and returning to the drachma, which would certainly be devalued.

For the banks, it would mean a substantial loss of value on their assets, prompting the government to seek a bailout.

“We are bound to end up in an EU bailout,” said Fiona Mullen, director of Sapienta Economics. “Basically we are faced with a second (banking) capital crisis.”

One way to avoid this is by isolating the banks’ operations in Greece.

An effort towards this has been undertaken by the Popular Bank but with no result, so far at least.

If this is unsuccessful, Mullen suggests going to the EU and asking them to bail out the banks in the event of a Greek exit in order to restore confidence.

“So we need a provisional EU bailout. It will come with tough conditions but probably conditions that the government has not had the courage to implement itself,” Mullen added.

Cyprus must also seek to dispel any suggestions that it would be following Greece out of the eurozone as it has been reported recently.

“The government seems to have done the right thing by moving quickly on Laiki (Popular) this week but it also needs to start saying very loudly that we are not leaving the euro,” to prevent any jitters, Mullen said.

The extent of effects of a Greek exit on Cyprus or the eurozone for that matter, are difficult to predict, though the consensus is they will be very negative. More so for Cyprus, which prefers the exit to come later rather than sooner – if it comes – so that it has more time to sort out the Greek loans issue.

Economist Symeon Matsis expects the whole eurozone to be affected, forcing the EU to take measures that will of course include Cyprus.

“They will be forced to bolster the support fund or create a new one,” Matsis said. “It’s not just Cyprus.”

Matsis expects such a development to plunge the island into a deeper recession, pushing back recovery by a couple of years.

“It is clear we will have a lot of negative effects. And considering that the Cypriot economy is already in recession, you understand what this thing means.”

“We will be talking about sacrifices from the entire population,” Matsis said, noting that the government – possibly with the exception of the decision to support Popular – has not yet taken the necessary measures that will allow it to intervene. “We’ll be forced to lower salaries to subsistence level so that we can become competitive and be able to re-enter international markets.”

EU policymakers insist they want Greece to remain in the eurozone but EU trade commissioner Karel De Gucht said the European Commission and the European Central Bank were working on scenarios in case it has to leave.

"A year and a half ago there maybe was a risk of a domino effect," De Gucht told Belgium's Dutch-language newspaper De Standaard.

"But today there are in the European Central Bank, as well as in the Commission, services working on emergency scenarios if Greece shouldn't make it. A Greek exit does not mean the end of the euro, as some claim."

Speculation about such planning has been rife, but de Gucht's comments appeared to be the first time an EU official has acknowledged the existence of contingencies being drawn up.

But the European Commission's top economics official, Olli Rehn, later dismissed De Gucht's comments.

"Karl De Gucht is responsible for trade. I am responsible for financial and economic affairs and relations with the European Central Bank." Rehn said. "We are not working on the scenario of a Greek exit. We are working on the basis of a scenario of Greece staying in."

Germany said on Friday that it had started making plans for a possible Greek exit.

"For the last two years we have been doing everything possible to keep Greece in the eurozone... We have a programme and we stand by this. Greece must also stick by this. Everyone is prepared to go forward with it. Brussels has also emphasised this," a German finance ministry spokeswoman said.

But she added: "The German government naturally has the responsibility to its citizens to be prepared for any eventuality," she said without elaborating.

She was echoed by the head of the International Monetary Fund Christine Lagarde who said it is their job to be “technically prepared for anything.”

Lagarde stressed that this was not the desirable solution.

“I think what we should look at is the optimal scenario where the country has the political resolve to actually observe the commitment, comply with the undertaking, stay within the zone, which seems to be the desire of the population,” Lagarde told the BBC. “But it goes with the effort to abide by the program, which has been put in place.”

German Chancellor Angela Merkel meanwhile spoke with Greek President Karolos Papoulias on Friday and told him of Germany's hope for a functioning government in Greece.

“She repeated the German government's position that we are waiting for the new elections and it is our wish and that of all European partners to see a new, functioning government,” a spokesman for Merkel said.

This hope is certainly shared by Cypriot officials who are anxiously watching developments in Greece.

Speaking in parliament after approval of the bill to support the Popular Bank, Finance Minister Vassos Shiarly urged Greek politicians to display the same level of unity and responsibility shown by Cypriot MPs.

“We hope that logic will prevail at the end of the day and what would happen in Greece is something like what you saw [in parliament] – politicians uniting and putting the country’s interest before anything else,” Shiarly said. “If Greek politicians also show the same responsibility … I believe they will succeed and not drag” our country into more difficult times.

THE FIRST Cypriot set foot on the summit of Mount Everest yesterday at 9am, Cyprus time, flying the flag on the top of the 8848m peak.

Giorgos Andreou, 39, has made the list of climbers – around 3,000 until now - to have succeeded in the treacherous journey to the top of the world’s highest mountain.

“He’s the first Cypriot ever to set foot on the highest peak and we’re very proud,” said Pavlos Georgiades, head of the Cyprus Mountaineering and Sport Climbing Federation.

He reached 7900m by 9pm Cyprus time yesterday (Friday) and then after 12 hours put his foot on the top, he added.

Andreou, who is also deputy head of the Federation, began the journey almost two months ago, the expedition beginning from Kathmandu with an international team of ten people. He was the second of his team to set foot on the summit.

The first successful ascent to the top of Mount Everest was made by Edmund Hillary and Tenzing Norgay in 1953.

“Think of how many times people have tried and haven’t managed,” said Georgiades.

Apparently in 2004 the Cypriot flag was placed on the top by a Greek team, which a Cypriot took part in but he did however not reach the top. 

Despite the joy and pride Georgiades feels at having a former student reach the highest point in the world, after two years of preparation, he said that the climb down is usually the more worrying part of the journey. “I feel more uneasy about the return as more accidents happen on the way down,” said Georgiades, explaining that this is the case usually because the climbers are tired and anything could happen, such as bad weather.

They also need to pace themselves so as not to get altitude sickness.

Apart from the return another very dangerous part of the journey is what is described as the ‘death zone’ which is the climb from about 8000m upwards (the last camp before the top). This is the point where temperatures can dip to very low levels, resulting in frostbite on any body part exposed to the outside air.  Low oxygen is also a problem so climbers must be equipped with oxygen tanks.

On the Facebook page Cyprus Everest Expedition 2012, Andreou describes Camp 4, death zone, as ‘literally an area covered in debris from 50 years of missions, filled with oxygen tanks, food wrappers and even human remains.’

The effects on climbers in the death zone is so great that it usually takes them around 12 hours to walk 1.72 km. An injured person who cannot walk is in serious trouble as rescue by helicopter is generally impractical and carrying the person off the mountain is very risky. People who die during the climb are typically left behind. About 150 bodies have never been recovered. It is not uncommon to find corpses near the standard climbing routes.

According to Georgiades Andreou would have come down a considerable distance in metres by yesterday evening and should be back in Cyprus in about a week.

In his nine-year climbing career Andreou has already taken on other high altitude mountains such as Mount Viatau in Russia, 3820m, Mount Elbrus at 5642m and Mount Aconcagua at 6967m, the highest mountain in the Americas.

Andreou with the flag at 7900 metres, the last leg before attempting the peak

CYPRUS IS the only EU member state not to have one of its diplomats appointed to head a delegation of the bloc’s nascent diplomatic service, headed by EU foreign policy chief Catherine Ashton. 

On Wednesday, Ashton announced her intention to appoint 15 new heads and two deputy heads of EU delegations around the world as part of the 2012 rotating of posts in the EU’s European External Action Service (EEAS). 

From the 17 new postings, seven come from national foreign ministries, five of which belong to the newer EU member states who joined the bloc in 2004 and 2007. An 18th new posting has yet to be filled, that of deputy head of the EEAS delegation in Turkey. 

With the latest round of appointments, 57 of the 153 management positions in EU delegations will be held by diplomats from national foreign ministries, of which 28 come from the 12 newest member states. 

The overall percentage of national diplomats in the EEAS is now 26.4 per cent, comprising 37.8 per cent in delegations, and 19.3 per cent in headquarters.  

According to a press statement released by Ashton’s office, overall, there are nationals of 26 of the 27 member states represented at this level in the EEAS.  

Foreign Minister Erato Kozakou Marcoullis told the Sunday Mail that she was not particularly concerned by the absence of Cypriot national diplomats in the new EU diplomatic service. 

“We had two candidates fielded for heads of mission. Unfortunately they were not selected. This is a matter for the High Representative Catherine Ashton to decide,” said Marcoullis, adding, “We thought we had fielded very good candidates. There will be other posts in the future and we hope to fill them.”

Asked whether she was disappointed by Ashton’s decisions, the minister said Cyprus currently had a lot of demands of its diplomats, with new embassies opening around the world and Cyprus’ EU Presidency approaching, making it harder to ‘lose’ diplomats to Brussels.  

“We are a small diplomatic service. We opened recently some new embassies, and this has increased the needs and requirements of the diplomatic service. But most importantly we have the EU Presidency coming up,” she said. 

“The EEAS is just one year old. After the EU Presidency, we will definitely be more demanding and present in filling these posts,” she said, hinting that more than two candidates may be fielded in the future. “The most important thing now is the challenge of the EU Presidency,” said Marcoullis.

Further selection procedures are ongoing within the EEAS for heads of delegation in Cuba, Djibouti, Iceland, Morocco, Nigeria, Paraguay, the Pacific Region (based in Fiji) and Uruguay. 

At External Action Service’s headquarters, selection procedures are ongoing for one managing director (Europe/Central Asia), two directors (Multilateral Affairs and Global Issues, and Conflict Prevention and Security Policy) and one principal adviser/special envoy (Disarmament and Non-proliferation). 

THE PRESIDENT of the European Parliament Martin Schulz arrived to Cyprus yesterday where he met President Demetris Christofias to discuss matters related to Cyprus’ Presidency of the EU council. 

Christofias warmly greeted Schulz in front of the cameras as the latter arrived in Christofias’ holiday home in the Limassol district in Kellaki.

Christofias said they had sketched out matters which Cyprus will need to spearhead when it takes over the presidency on July, focusing on the negotiations over the 2014-2020 EU budget.

The economy will be at the forefront of discussions, Christofias said but added there were “other issues concerning us”. 

Schulz said that Europe was in a “deep crisis” showing perhaps that “we should return to the principles Cyprus always defends and that should be the principles of its EU presidency, that is to say social cohesion and justice”. 

Commenting on Turkey’s warning against any company intending to drill for hydrocarbons in Cyprus’ exclusive economic zone, Schulz said that threats were unnecessary.

“We need mutual respect and understanding and consequently threats never make any sense,” he said.

CONSUMERS are being urged to avoid using electronic cigarettes as there  is no legal framework to regulate them meaning any that any mported to Cyprus have not been through health and safety checks.

The Health Services have decided to launch an investigation into the matter.

Speaking to the state broadcaster yesterday, the Services’ head, Christos Christou, admitted the cigarettes were not being checked by the state services.

He said the authorities planned to take action in the coming days, to check the liquid contained in the cigarettes – which should consist of pure nicotine – as well as the safety of the actual gadget. 

“No one is checking them,” said Christou. “We need legislation to deal with it. It is in our goals for the next few days, to check the liquid at least and maybe get other services check its function.”

He said the EU was urging member states to regulate the matter.

 “The electronic cigarette is not regulated by the (EU) Directive for tobacco products and doesn’t fall within the provisions of this directive,” Christou explained. “The European Commission is aware of the fact that it isn’t included there and is asking that the matter is discussed so it is regulated legally, because at this moment, every country has its own national law.”

He said Greece had one of the strictest laws in the EU on the matter, banning electroonic cigarettes altogether.

“The way we see it, under normal circumstances, this cigarette must have this oil, which is clear nicotine,” Christou explained. “So the checks that need to take place are to see if this liquid indeed has clear nicotine in it or any other substances or polluters that could possibly pose a public health risk. It is a measure that could be made in coordination with the member states.”

He added, “The other is to check the actual appliance to see that it is working properly, without creating any bad functions that could in any way affect the user”.

COMMUNICATIONS Minister Efthymios Flourentzos said yesterday that negotiations with Chinese firm Far Eastern Phoenix on a proposed investment at the old Larnaca airport had come to a close. 

“It was clear during the negotiations that there is good will from both sides,” Flourentzos told state broadcaster CyBC. 

Far Eastern Phoenix had already submitted a report on the financial and technical aspects of the investment as per the Communication ministry’s request.

Flourentzos said that a report was being prepared over the weekend so that it could be studied by a ministerial committee on Wednesday. The committee will then pass the report to the Cabinet along with final suggestions.

The report concerns developing the old Larnaca airport space comprising 475,000 square metres, taking over from Hermes Airports which has a concession agreement, expiring in 19 years.

Far Eastern Phoenix has asked use of the space for an additional 31 years.

The value of the investment has been placed at €600 million and is said to include a commercial centre with a showroom and bonded facilities. Chinese factories would have some 4,000 booths to display products.

ALTHOUGH a 2004 law states that beaches in Cyprus need to offer disabled access, the truth is that most have no facilities catering to people with impaired mobility but a subsidy scheme from the Cyprus Tourism Organisation (CTO) now promises 70 per cent reimbursement on all works carried out to that effect. 

The CTO said it aimed “to extend and improve hotels’ capacity for hosting people with mobility difficulties or impairments”.

The subsidy can be given to help big or small hotels and hotel apartments as long as they go towards upgrading all common spaces (indoors and outdoors); ensuring there are lavatories and showers, parking spaces, and a set number of properly fitted rooms.

Common spaces must guarantee a constant flow of movement.

Just seven beaches in Cyprus have wheelchair access points, often the result of lobbying from the Green Party, the Paraplegic Association and other organisations. 

The CTO has partially funded six of the projects including the Olympic Coast beaches in Limassol, the Dasoudi beach in Yermasoyia, Fig Tree Bay in Protaras, and Vathia Gonia and Landa Beach in Ayia Napa. 

The CTO has also fully funded a standalone system to provide persons with disabilities access to the sea in Polis Chrysochous.

It consists of an easily accessible chair which sits on top of a long metal moveable track ending up in the sea. The idea is to allow people to gracefully gain access to the sea. 

The funding scheme will cover 70 per cent of expenses of up to €30,000 before VAT. The CTO has a total of €150,000 available to the scheme.

Those interested need in applying need to do so by 12.30pm on July 27. Works need to be completed by the end of the year.  Call 22691281 or 22691159 for more information or else go to www.visitcyprus.biz 

NICOSIA’S municipal pool will open its doors for summer on May 28, the municipality said yesterday. The pool will be open until September 30 between 10am and 7pm.

For children up to five years old entrance is free. For those aged between five and 18 years it is €6 and for over 18s,  €7. Use of a bed costs €2. 

Seasonal tickets for soldiers, students and under 18s are €60 and €90 for over 18s. Couples can get a joint ticket for €150, families with up to two children €170, and three or more children €180. 

For Nicosia residents, a 50 per cent discount is available for families with four or more children. Entrance to Greek soldiers, and Nicosia residents with six or more children is free.

Between June 1 and August 31, seasonal ticket holders can enjoy an aqua aerobics class on Mondays and Fridays from 10am until 11am.

For more information call 22797646 or 22797647 office hours Monday to Friday.

POLICE are launching a campaign as of tomorrow in Limassol to reduce traffic accidents among immigrant drivers, cyclists and pedestrians. 

They plan to dish out leaflets in various languages, along with bicycle lights and yellow phosphorescent wrist bands. Officers will be stationed in the Ayia Ekaterinis church area, on 28th October Street, near the GSO stadium, between 11am and 12.30pm.

The leaflets will be available in Greek, English, French, German, Romanian, Bulgarian, Russian, Arabic, Sri Lankan, Chinese and Tagalog. 

FINANCE Minister Vassos Shiarly said yesterday approval of a bill to support the island’s second-biggest lender gives Cyprus more time to explore other options and possibly avoid a bailout.

The minister appeared moved by the rare show of unity displayed by MPs -- driven by fears about the impact a Greek exit from the eurozone would have on its third-smallest member.

Shiarly congratulated the MPs “because during a difficult time they proved that above all they put their country and not political interests.”

He went a step further urging Greek politicians to emulate their Cypriot counterparts.

“If Greek politicians show the same responsibility that the politicians of Cyprus showed here today things will be fine, and it (Greece) won't drag Cyprus more difficult days," he said.

Popular was battered by a write-down in its Greek sovereign debt holdings - agreed by European leaders to keep Greece afloat this year - underscoring worries on the island that its banking system would be more vulnerable from contagion if political upheaval wracking Greece thrusts it out of the euro.

"I think the concern about Greece is shared not only by Cypriots but by all Europeans. It's a worry we all have and we just hope that logic prevails at the end of the day," Shiarly said.

Parliament approved emergency legislation for the state to underwrite a €1.8 billion equity issue by the Popular Bank, which is heavily exposed to Greek debt.

The government could end up with a stake in Popular under the deal, which could see Cyprus stump up an amount equivalent to 10 per cent of its GDP.

Without approval of the legislation, the cash-strapped government could have potentially faced the need to resort either to bilateral lending, or to a bailout to aid the bank.

The capital shortfall of the bank is a predicament for Cyprus due to its own limited funding options. Fiscal slippage and Greek exposure of its banks has meant the island has been shut out of international capital markets for a year.

Asked whether the need to seek a bailout had been avoided, Shiarly said: "This gives us the ability to examine other options ... we will work in the time ahead to examine every option possible to avoid the (support) mechanism."

Wary of the experience of Greece and keen to maintain its coveted low-tax status for businesses, Cyprus has done its utmost to avoid turning to its EU partners for any financial aid.

 It received a €2.5 billion bilateral loan from Russia in late 2011, disbursed in three tranches from December 2011 to April 2012.

Popular was hit by a 76 per cent write-down on its Greek sovereign bond holdings, with an impairment loss of €2.3 billion depleting its regulatory core tier 1 capital. 

The European Banking Authority (EBA) has set the replenishment at €1.97 billion  and Popular must meet this requirement by June 30.

The bank has also been tapping Emergency Liquidity Assistance extended through Cyprus’ Central Bank.

"It’s no secret. Like many other banks we had to resort to emergency liquidity assistance from the Central Bank," Popular's non-executive chairman Michael Sarris told Reuters.

Under the terms of Cyprus underwriting Popular's rights issue, the state would end up with any stock not taken up by existing shareholders in a public offer or a private placement. The acquisition would be in a swap of zero-interest government bonds for a shareholding in the bank.

"We would like to maximize the amount of private capital to come to help us recapitalize the bank, we are not sure how that will play out, it's an uncertain world," said Sarris.

He said the bill gave the bank breathing space to achieve what needed to be done so that the banking system returns to a healthy base.

“I must stress that our banks are profitable in the domestic market. Today they are not profitable in Greece. The effort is to contain this risk,” Sarris said.

(Additional reporting by George Psyllides)

Finance Minister Vassos Shiarly