The Cyprus government extended on Wednesday by three months the mandate of the Investigation Committee set up to look into the near collapse of the banking sector and the economy of the country.
"The Council of Ministers decided to extend the mandate of the Investigation Committee", Deputy Government Spokesman Victoras Papadopoulos said in statements to the press, adding the work of the committee is extended by three months.
Noting that the three-member Committee should deliver its report today, Papadopoulos added that the Committee requested the extension citing heavy workload and the delays to its work due to the resignation of two of its members. Two Committee members, former Supreme Court judges, resigned the one citing health reasons and and the other conflict of interest, whereas a Committee staff member resigned disagreeing with the Committee investigation format.
Meanwhile testifying on Wednesday before the Committee, Head of the Finance Ministry`s Directorate for Budget and Fiscal Control Stavros Michael said the government increased public spending despite suggestions by the Ministry`s technocrats for the contrary.
Michael said his Directorate had acknowledged that unusually high revenues due to the housing bubble would not continue and submitted suggestions that public spending should be limited.
He noted that his Directorate submitted in 2008 proposals with a view to increase regular spending by 3% and development expenditure only by 6%, noting that by the time the budget law was submitted to the parliament regular expenditure doubled to 6% whereas development expenditure reached to 26.8% of the GDP.
"We should have been more restrained with regard to public spending as high revenues would not continue indefinitely," he said, adding that "economic theory says that when you have unusually high revenues you should not increase expenditure, whereas one-off revenues should be used for debt repayment."
Michael agreed with positions expressed in previous Committee hearings that Cyprus should have appealed for a bailout from May 2011 when it was excluded from international capital markets.
"From the minute you are unable to finance the state budget and the real economy, you should find alternative ways to avert a default. At the time, the EU bailout mechanism was the only alternative way available," he said, noting that if Cyprus requested a bailout earlier than June 2012 the measures taken "could possibly be more mild."
Excluded from capital markets since May 2011 Cyprus applied for a bailout in June 2012, after its two largest banks requested state aid following massive losses amounting to €4.5 billion as a result of the Greek sovereign debt haircut and to cover is growing fiscal needs.
Cyprus and the Troika of the European Commission, the European Central Bank and the International Monetary Fund agreed on March 25 on a €10 billion bailout which included imposing losses on bank uninsured deposits as well as fiscal consolidation measures amounting to 7.2% of GDP by 2016.
