Worrying That Cyprus Lost Trustworthiness - Orphanides

It is worrying that Cyprus appears to have lost its trustworthiness amid successive downgrades of its sovereign credit, said Central Bank Director Athanasios Orphanides in an interview with Kathimerini newspaper.

"Despite the recent worsening, the economic situation remains manageable. But I do not wish to hide my concern," he said.

The European Commission confirmed that the Cypriot economy will experience almost zero growth in 2011 and 2012, and foresees a significant increase in the unemployment rate to over 7 percent.

"The Commission also confirmed the fiscal deterioration observed in Cyprus. The deficit for 2011 is expected to reach 6.7 percent," he said.

Orphanides defended his earlier statements that Greece would not need a devaluation of its debt, saying: "my statements as well as similar statements by other officials were consistent...a possible haircut of the Greek debt is unnecessary and it is harmful for Greece and for the euro area as a whole."

Denying that his statements misled the markets, Orphanides said that "With the decisions taken, first on July 21 and then on October 26, the political leaders of the euro area member states essentially imposed a haircut of Greek sovereign debt."

The decisions were taken by President Christofias, Prime Minister Papandreou, Prime Minister Berlusconi and their counterparts, he said.

"In my view, imposing a haircut on Greek debt was neither the most effective nor the most efficient way of resolving the sovereign crisis in the euro area," said Orphanides.

Forcing the private sector to accept impairment of the Greek debt appears to have generated concerns about the possible future impairment of sovereign bons in other euro member states," said the Central Bank director.

Commenting on Lucas Papademos' appointment as interim prime minister of Greece, Orphanides said it was an outstanding appointment and he has no doubt that Papademos will achieve the best possible outcome for Greece, given the circumstances.