Chyrosostomos Now Favors Euro, Unity

NICOSIA – After favoring Cyprus leaving the Eurozone and opposing unification talks with Turkish-Cypriots, Archbishop Chrysostomos II, the powerful leader of the Orthodox Church here, has had a change of heart.

He now says it’s in the best economic interests of Cyprus to stay with the euro, even though the church lost a big chunk of its portfolio and holdings in the country’s banks when the government last year accepted a harsh bailout deal from international lenders.

“The isolation from Europe would have been disastrous,” he told The Wall Street Journal in a wide-ranging interview in which he talked about politics, economics and the fate of the country that’s been divided since an unlawful 1974 Turkish invasion.

And where he once warned Cypriots that if they voted for a place to reunify the island with Turkish occupiers on the northern third that they wouldn’t get into heaven, he says it’s the path to peace.

Chrysostomos still showed anger over the deal that President Nicos Anastasiades made with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which led to the confiscation of 47.5 percent of bank accounts over 100,000 euros, saying it was legalized robbery.

The government’s decision to enforce that condition in return for a 10 billion euro ($13.7 billion) rescue package cost the powerful Church of Cyprus and served as another sign of how marginalized the church had become after the 2008 election of Dimitris Christofias, a Communist, as President.

But now, the Journal noted, with the center-right government of Anastasiades in office, the  73-year-old Archbishop seems to be trying to recover some of that lost clout—and money.

He regularly meets with Anastasiades, is talking more to the media and has taken it upon himself to invite potential investors to the island.

“He is regarded as the most commercially minded cleric in Cyprus,” James Ker-Lindsay, a professor at the London School of Economics specializing in Cyprus and the region, told the Journal. A popular joke goes that the archbishop’s title should be “Chief Executive Officer, Church of Cyprus Inc.”

With the Cypriot economy forecast to shrink 4.8% this year, following a 6% contraction in 2013, the Archbishop faces a similar challenge to some CEOs: how to preserve value in a shrinking market.

There is no public record of the church’s assets and its chief financial officer declined to provide one or comment for this article. The Archbishop himself has valued total church assets at about €4 billion, equal to a quarter of the country’s annual economic output.

The Cyprus Holy Archbishopric owns big chunks of publicly traded companies: Vassiliko Cement Works Ltd, the country’s only heavy industry; Hellenic Bank, where U.S. hedge fund Third Point LLC is also a major shareholder; and beer and soft-drinks firm KEO.

It also is the biggest landowner in the country. But its real-estate holdings have been hit by a collapse in property values, which fell 15% in 2013, according to a survey by the Royal Institution of Chartered Surveyors.

However, its investments in banks have suffered most.

To get the 2013 bailout, Cyprus had to close its second-largest bank, Laiki, and restructure the largest, Bank of Cyprus, forcibly converting large deposits into shares.

“With what right did they touch depositors’ money? Investors lost their capital, too!” the Archbishop, who vigorously opposed the deal, said in an interview in his bright office, located in Nicosia’s old town.

“I reacted to this with all the strength in my soul,” he said in Katharevousa—a lofty mixture of ancient and modern Greek mostly spoken by clergy in Greece and Cyprus.

The church suffered at least €80 million in paper losses when its stake in the Bank of Cyprus was repriced because of the restructuring and lost 98% of its value.

If the Archbishop had had his way, Cyprus—which joined the European Union in 2004 and the euro in 2008—would never have gone to Brussels for financial assistance in the first place. His preference was for stronger ties to a fellow Orthodox country: Russia.

In 2011, when Cyprus first faced default, Archbishop Chrysostomos called on his “brother,” as he calls Kirill, the primate of the Russian Orthodox Church, to help then-President Christofias secure a €2.5 billion loan from the Kremlin.

Two years later, a similar intervention helped Cyprus win better repayment terms. “We intervened to extend the loan,” he says, rearranging the wide sleeves of his cassock to reveal a golden wristwatch.

With Anastasiades resuming unification talks with Turkish-Cypriot leader Dervis Eroglu, Chrysostomos said he supports those negotiations to bring the 265,000 Turkish Cypriots and 839,000 Greek Cypriots under one federal state.

“If the Turkish Cypriots really want to make a proper federation and to live happily on the land of our fathers, we have all the good will to work toward that. If they do too, we can get to the end,” he said.

But there could be pragmatic and financial reasons too. People familiar with the church’s property said much of it is in the Turkish-occupied part of the island. A reunification plan that saw some of that land returned would significantly boost the church’s portfolio, the Journal noted.

The archbishop recently issued an extraordinary joint declaration with the Turkish Cypriot mufti, the religious leader in the predominantly Muslim north, calling for peace and unity on the island. Yet he says he’ll withdraw support for any plan that doesn’t send Turkish settlers in Northern Cyprus back to Turkey. The mufti is a settler.

Archbishop Chrysostomos handling of this and other tough political issues “shows why we still use the term ‘Byzantine’ when talking about the highest forms of political scheming,” Mr. Ker-Lindsay says. He warned against taking the Archbishop’s support for reunification for granted.