Eurozone tackles sensitive Cyprus debt bailout
- Published: 15/03/2013 at 10:49 PM
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Eurozone finance ministers thrashed out a bailout for Cyprus late on Friday, edging towards a new and reduced framework for a fifth member state in the three-year debt crisis.
Greek, German and French euro coins are displayed in Paris on September 14, 2011. Eurozone finance ministers began talks to thrash out a difficult but important bailout for Cyprus, the fifth member state to need help in the face of a debilitating debt crisis.
Officials said the price tag for Cyprus would almost certainly come in at around 10 billion euros -- small compared with rescues for Greece worth some 380 billion euros ($496 billion), Ireland's 85 billion euros, Portugal's 78 billion and 41 billion for Spanish banks.
Around five hours into what was expected to be an overnight session, diplomatic sources said Cyprus President Nikos Anastasiades joined the talks and "presented the ministers with alternative figures."
In a bid to silence creditors' calls for Cypriot banks to take a hit as part of the deal, these would involve new money from "Cypriot sources" to close the gap on the 17 billion euros initially mooted last year.
Most of the main participants had indicated a willingness beforehand to reach a deal at least in principle.
"We have underlined with Wolfgang Schaeuble that we want to see an aid programme drawn up before the end of March, we are within that schedule," said French Finance Minister Pierre Moscovici on arrival, referring to his German counterpart.
Both men said they looked forward to assessing reports on Cyprus by the troika of the International Monetary Fund, the EU and the European Central Bank.
Schaeuble said the meeting would review the troika reports, stressing that this was the first time ministers would have "substantive discussions" on Cyprus.
Amid doubts about the extent of the eventual financial contribution from the International Monetary Fund, its managing director Christine Lagarde stressed the need to get a watertight agreement above all.
"We don't want a bandaid (solution). We want something that lasts, that is durable and sustainable," Lagarde said on her arrival.
"I do not know," Eurogroup head and Dutch Finance Minister Jeroen Dijsselbloem said when asked about how much the package could cost.
"I know what my main goals are," he said. These were "to make sure that there is stability in the eurozone and that there is a new sustainable growth path possible for Cyprus.
"Those are the boundaries within which we have to find a solution," he said.
Cyprus, whose banks were badly exposed to their failed peers in Greece, sought a bailout in June 2012 but negotiations proved difficult, with the country hoping to get help from Russia with whom it has strong ties.
Cyprus Finance Minister Michalis Sarris reportedly flies to Moscow for talks Monday about extending a 2.5-billion-euro Russian loan payment due in 2016, and to discuss how Russia could contribute to a bailout package.
At 17 billion euros, a bailout would equal the total annual output of the Cypriot economy and increase the country's debt burden to what are deemed unsustainable levels, a key point for Lagarde and the IMF.
To reduce it to a more manageable level, Cyprus will likely have to sell off state assets, hike its very low corporate tax rate of 10 percent and possibly impose a levy on bank deposits and investors who would lose money as a result.
This 'haircut' or 'bail-in' is the most controversial option and has been bluntly rejected by Nicosia as risking a massive run on the banks which would sink its financial system and threaten the whole euro single currency.
Another key sticking point for hardline lenders like Germany has been the island nation's Russian connections and its banks alleged involvement in money laundering.
Alan Lemangnen at the Natixis investment house said he expected ministers would discuss a package of around 10-13 billion euros which would bring the debt ratio to some 125 percent of Gross Domestic Product.
That is more than double the EU norm and close to Greek bailout levels but the IMF is uncomfortable at anything above 100 percent, making for likely difficult talks, Lemangnen said.
"All in all, the scenario of an overall agreement remains ruled out for now, and EU senior officials have already talked about a second extraordinary meeting next week," he noted.
About the author
- Writer: AFP
Position: News agency