1. (SBU) SUMMARY: The recent appointment of controversial "insider"
Kikis Lazarides as the executive chairman of troubled
state-controlled Cyprus Airways has sparked a new round of bickering
between the Presidential Palace and leaders of the three-party
governing coalition. Party chieftains initially directed their
criticism over the "ill-timed and incorrect" decision on Lazarides
toward Finance Minister Michael Sarris; the clash evolved, however,
into a power struggle between President Tassos Papadopoulos and DIKO
leader Marios Karoyian over appointments to Cabinet and parastatal
corporation positions. Underlying enmities among the coalitioQ
parQ have been exposed by the spat, since neither AKEL nor EDEK
came to Karoyian's defense, perhaps in hopes of bettering their own
coalition fortunes as DIKO's dropped. Karoyian's decision to take
on Papadopoulos -- the party's former head -- appears an attempt to
solidify his own position; all indications show it backfired. END
SUMMARY.



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A Dubious Selection Meets Criticism


--------------------------





2. (SBU) Reactions were almost all negative to the March 28
appointment of Kikis Lazarides, the former chairman and CEO of Laiki
Bank, as the new executive chairman of Cyprus Airways. Lazarides,
72, held the same position at the struggling national carrier from
1989 to 1993. His critics lambasted Lazarides's conduct and
performance while running the airline, claiming he regularly
extended favors to friends, political allies and family, all the
while ignoring the core elements of his position. Opponents of the
appointment also claim the septuagenarian is over-extended
currently; in addition to the new gig at Cyprus Airways, he also
acts as chairman of the University of Cyprus, the Cyprus Olympic
Committee, and the Cyprus Culture Foundation.



3. (SBU) Lazarides's forced resignation from the chairmanship of
Laiki Bank in 2006 (Reftel) came amid accusations by the incoming
Laiki leadership that he had abused his position for personal gain
and granted favors to influential politicians and friends. Among
the many allegedly on the receiving end of the chairman's largess
were Papadopoulos and current Finance Minister Michael Sarris, whose
appointment in August 2005 Lazarides had strongly backed.



--------------------------


Parties Blast Sarris, Then Change Targets


--------------------------





4. (SBU) Coalition partner AKEL focused its criticisms of the
appointment mainly against Sarris, since the Finance Minister had
recommended Lazarides to the Council of Ministers. Sarris has long

been an AKEL enemy, most recently earning the Communists' ire for
shepherding Cyprus's entry into the Eurozone and pushing for a
higher retirement age. In its criticisms, AKEL did not openly
question Lazarides's ability to resuscitate nearly-bankrupt Cyprus
Airways, but rather noted there were others better-suited for the
job who did not hold three other positions. The party called on
Lazarides to abandon his other jobs.



5. (SBU) Employing harsher language than AKEL, DIKO slammed Sarris
for the appointment. The criticism would later morph into a battle
between party leader Marios Karoyian and the Presidential Palace.
Karoyian reportedly had submitted to the Palace a list of DIKO's own
candidates for the Cyprus Airways slot, which was completely
ignored. The DIKO chief claimed that Sarris had deceived the
Council of Ministers by leading members to believe he had consulted
with the coalition parties before nominating Lazarides. Karoyian
also expressed doubts whether the 72-year-old, known for his "old
school" business practices, was up to the task of heading the
national carrier.



--------------------------


A Strong Defense Hangs Karoyian Out to Dry


--------------------------





6. (SBU) Papadopoulos came to Sarris's defense, arguing that only
the President could be held accountable for the decisions of the
Council of Ministers. He dismissed criticisms against Lazarides,
claiming the chairman had both the experience and knowledge to
protect Cyprus Airways. Papadopoulos's intervention and a
consequent statement by Government Spokesman Christodoulos
Pashiardis, stressing that the President had the absolute authority
to appoint any person to head the airline, further incensed
Karoyian. Abandoning his normally mild manners, Karoyian argued
that DIKO and its coalition parties had the right to express their
opinions on appointments in the semi-government sector.

NICOSIA 00000304 002 OF 002





7. (SBU) Karoyian found no support among his coalition partners in
his supposed bid to "protect" their rights. On the contrary, EDEK
leader Yiannakis Omirou accused DIKO of hypocrisy, asserting that
Sarris's lack of party affiliation made him an easy target and a
punching bag. AKEL leader Dimitris Christofias retreated from his
party's earlier position and stated that the President enjoyed
authority to appoint the boards of semi-government organizations.
Even a smattering of prominent DIKO leaders, including Cabinet
members, sided with the Presidential Palace despite the party's
official position backing Karoyian.



--------------------------


Why Pick This Fight?


--------------------------





8. (SBU) Political observers believe Karoyian's rebellion had two
purposes. First, it was meant to please disgruntled DIKO members
who complain that the Palace takes DIKO support for granted and
ignores the party's requests while, in contrast, it is always
generous with AKEL. During his party election campaign last year,
Karoyian committed to fighting for a bigger share of government
appointments for DIKO. Second, experts believe that Karoyian was
attempting to move out from Papadopoulos's shadow -- the President
only relinquished DIKO's reins last year -- and start building his
own power base.



9. (SBU) COMMENT: Karoyian erred in waging this war. While he
might have satisfied a few discontented DIKO-ites, his efforts
brought him heavy criticisms from the usually sympathetic media,
coalition partners, and some DIKO leaders. Further, many argue that
Karoyian targeted Sarris solely from fear of taking on Papadopoulos,
the real architect of Lazarides's appointment. Rather than escaping
Papadopoulos's shadow, Karoyian emerges a weaker leader from this
unsuccessful "rebellion." The likely upshot of the tiff in terms of
coalition politics is that DIKO, whose members have no choice other
than to support Papadopoulos, will be forced to yield more slots and
chits as AKEL and EDEK demand more and more from a president who
must retain their support to win re-election. END COMMENT

SCHLICHER