* Says Greek debt writedown helped trigger vicious cycle
* Says was ignored, undermined by government
* Government blasts comments as “outrageous”
* Steps down on May 2 (Adds govt comment, paras 5, 14)
By Michele Kambas
NICOSIA, April 30 (Reuters) - Cyprus’s outgoing central bank chief accused the government of ignoring him at its peril on Monday, with warnings of fiscal slippage repeatedly overlooked and the cash-strapped island possibly now facing a major bank bailout with empty pockets.
Athanasios Orphanides said in his last public appearance before lawmakers he was ignored by the country’s president and disagreed with a Greek debt writedown which inflicted massive losses on bond holding Cypriot banks, forcing a rush to recapitalise them by a mid-year deadline.
He also said he had faced repeated challenges to his authority as an independent official.
“It’s a shame we got to this point. For those of us in the know, it was apparent that with some simple actions we could have avoided the risks we are exposed to today,” Orphanides said.
The government called his comments ‘outrageous’ and a clear attempt to shift blame from Orphanides’s regulatory oversights onto authorities.
Orphanides’s five year term as head of Cyprus’s central bank and as an influential ECB policymaker ends on May 2. Resisting strong pressure to keep him on, Cypriot President Demetris Christofias on Saturday appointed economics professor Panicos Demetriades as his replacement.
One of his most pressing tasks is to oversee the recapitalisation of two Cypriot banks. There are growing concerns that one of them could require a bailout from the state, itself facing restricted sources of cash since it was shut out of international capital markets last year.
Cypriot lenders posted mammoth 2011 losses on a Greek government bond writedown which formed part of that country’s second international bailout. The debt writedowns were approved by EU heads of state, including Cyprus.
“The Greek debt haircut proved very damaging to Cyprus and to the euro zone,” Orphanides said. Repeated attempts to convey this view to Christofias failed, he said. Highlighting his own lack of communication, he said his counterparts at the ECB were in ‘daily contact’ with their national leaders.
Before a April 27 meeting where Christofias told Orphanides he would not be reappointed, the two hadn’t met for over a year.
Asked what he would have done differently to what Christofias actually did, he replied : “The minimum I would have demanded to agree with the haircut - and every country has the right to protect itself - is that banks have the ability to draw support from the EFSF, instead of through the state.”
“It is with great sadness that I have to say the president never asked for my view, and I had repeatedly asked for meetings with him,” Orphanides said.
His outburst, reaffirming widespread speculation of tense relations, drew a shrill response from the government.
“Instead of apologising since as regulator he didn’t exercise his duties in stopping the exposure of Cypriot banks to Greek bonds he is trying to offload his responsibilities onto the government,” said the government spokesman, Stefanos Stefanou.
Orphanides was known to have angered Christofias in the past with repeated calls for fiscal consolidation. He didn’t pull any punches on Monday, saying authorities had repeatedly delayed taking measures to arrest fiscal slippage.
One bank, Cyprus Popular faces a mid-year deadline to raise more than a billion euros in fresh capital.
If the bank cannot find the cash privately, the government will have to step in, calling to question where it will find the cash if required.
High yields shut Cyprus out of international capital markets a year ago. Spooked by the bailout experience of Greece, tax haven Cyprus turned to its Russian allies for cash in late 2011 instead of to European partners.
Asked whether Cyprus may itself be forced into a support mechanism to fund the bank if necessary Orphanides said: “We should not be worried about this possibility if the efforts of the past few months by the central bank and the finance ministry yield results.”
He did not elaborate on what options authorities were working on. A source at Popular told Reuters recently the bank was trying to tap recapitalisation funds being made available to Greek banks.
Cyprus’s finance minister, Vassos Shiarly, has said that any state intervention, if required, would take place well before June 30, the cut off date set by the European Banking Authority for banks to bolster their capital. (Reporting By Michele Kambas; Editing by Ron Askew)