CYPRUS: U.S. FEDERAL RESERVE BOARD STAFFER NAMED NEW

UNCLAS NICOSIA 000350

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV CY
SUBJECT: CYPRUS: U.S. FEDERAL RESERVE BOARD STAFFER NAMED NEW
GOVERNOR OF CENTRAL BANK


(U) This cable is sensitive but unclassified. Please protect
accordingly.


1. (SBU) Summary: President Papadopoulos has appointed Athanasios
Orphanides, an MIT-educated, U.S. Federal Reserve Senior Adviser, to
serve as the new Governor of the Central Bank of Cyprus. Orphanides
will succeed aging incumbent Christodoulos Christodoulou, whose
five-year term ends on May 3. Finance Minister Michalis Sarris, who
himself spent 30 years in Washington D.C. with the World Bank,
reportedly recommended Orphanides, whom he knows personally.
Orphanides' appointment fits the Sarris mold. He is a technocrat
with no known party affiliation, who has spent his entire
professional career outside of Cyprus and mainly in the U.S.
Orphanides will be expected to ensure a smooth transition to the
Euro and to continue to modernize and professionalize the Cypriot
banking system. End Summary.


2. (U) On April 13, President Papadopoulos named Athanasios
Orphanides as the new Governor of the Central Bank of Cyprus, for a
five-year term beginning on May 3. The incoming Governor, aged 45,
has been working in the U.S. Federal Reserve System as research
staff since 1990. Orphanides began his career at the Fed as an
economist in the Division of Monetary Affairs, working on
macroeconomic, finance, and monetary issues. In 2006, he was
promoted to senior adviser in the same division, with an active role
in formulating and implementing U.S. monetary policy as well as
midterm strategy. While working for the Fed, Orphanides also
lectured at the graduate and post-graduate levels at Georgetown and
Johns Hopkins universities.


3. (U) Prior to his career at the Fed, Orphanides worked as a
research associate with the Centre for Financial Studies in
Frankfurt, London's Centre for Economic Policy and Research, and the
Kiel Institute for World Economics in Germany. He earned his Ph.D.
in Economics from the Massachusetts Institute of Technology (MIT) in
1990, after obtaining two under-graduate degrees from the same
university in Economics and Mathematics in 1985. Orphanides has an
extensive list of macroeconomic and monetary policy publications to
his credit. He is married with two children.


4. (SBU) Orphanides will succeed aging incumbent Governor
Christodoulos Christodoulou. Christodoulou, 68, was appointed at
the helm of the Central Bank in May 2002, after a long and
distinguished career in the civil service. Christodoulou twice
served as Minister of Finance and as Permanent Secretary at two
ministries -- Labor (1985) and Agriculture (1989). Christodoulou
has widely been criticized in the media recently over his daughters'
involvement in a company responsible for preparing bank employees
for mandatory state examinations.


5. (SBU) Orphanides will inherit a couple of main priorities.
First and foremost will be to ensure the smooth transition to the
Euro on January 1, 2008. Barring any major external shocks, the EU
is widely expected this summer to approve Cyprus's application to
join the Eurozone effective January 1. Nevertheless, polls continue
to show as many as 50 percent of Cypriots continue to have serious
concerns about giving up the Cypriot pound, mainly due to Greece's
perceived negative experience with the transition to the Euro and
inflationary fears. The new Governor will also be expected to
continue his predecessor's campaign to modernize and professionalize
the Cypriot banking system. As most Cypriots are linked to one of
the three Cypriot banks, and many key Cypriot families have often
used the banks as their personal fiefdoms, being an outsider may be
a significant advantage.


6. (SBU) Orphanides' appointment put an end to a long litany of
names being floated around unofficially as likely suitors for this
much-coveted and influential post. Among those names were Finance
Minister Sarris, former Finance Minister and currently Hellenic Bank
CEO Keravnos, and Cyprus Development Bank General Manager
Taoushianis. Orphanides is said to have the endorsement of both
(communist) AKEL party (the largest party in the current
administration's ruling coalition) and Finance Minister Sarris
(himself a technocrat with international credentials and a long
career at the World Bank behind him from 1975 to 2004) before
earning the President's final endorsement.


7. (SBU) Although Orphanides is not known to have any political
affiliation, his family has reportedly been traditional supporters
of AKEL. Furthermore, his father, and two siblings all studied in
the former (communist) Czechoslovakia.



8. (U) Initial press reaction towards Orphanides' selection has
been positive. One editorial entitled "Orphanides Appointment Shows
the Way" read: "(Orphanides) is a young person, a technocrat with
knowledge and experience outside of Cyprus. Generally, he has what
it takes to make him a good choice by President Papadopoulos. His
appointment also shows that there are younger Cypriots, with all the
necessary knowledge and credentials to succeed the 40's (and older)
generation, which continues to occupy most key posts in Cyprus. It
also shows that candidates should not be limited by internal or
party-line boundaries. Solutions from the past cannot make the
future."

SCHLICHER