Eurozone targets Cyprus bailout deal this month

Mon, Mar 4, 2013

Business Finance

Jeroen Dijsselbloem (L) talks with Luc Frieden prior to an Eurozone meeting on March 4, 2013 at the EU Headquarters
Jeroen Dijsselbloem (L) talks with Luc Frieden prior to an Eurozone meeting on March 4, 2013 at the EU Headquarters

Eurozone finance ministers said Monday that a long-delayed bailout for Cyprus could be fixed within 10 days after Nicosia agreed to submit its financial sector to independent scrutiny amid concerns of large-scale money-laundering.

Long resisted by the previous Cypriot government, the first face-to-face talks between the other 16 ministers from the euro currency area and their new Cypriot counterpart, Michael Sarris, were hailed by Eurogroup chairman and Dutch Finance Minister Jeroen Dijsselbloem after barely four hours of talks in Brussels.

“The first exchanges with the Cyprus government have been useful and with the new government in place, we are confident that a swift conclusion to a Memorandum of Understanding (bailout deal with eurozone and IMF creditors) can be reached.”

Dijsselbloem said ministers “agreed to target political endorsement of the programme around the second half of March.”

The key change, the Dutchman said amid negotiations that stretch back to June 2012, was that the new Cypriot government agreed to “an independent evaluation” leading to concrete action on “anti money-laundering.”

“We reiterate our readiness to aid Cyprus in its adjustment effort including for its banking sector,” he added.

Sarris was named by incoming Cyprus President Nicos Anastasiades, who has vowed to save the near-bankrupt Mediterranean island from financial meltdown with the “earliest possible” bailout.

Eurozone ministers had put rescue negotiations on hold until after last month’s election.

The anticipated 17-billion-euro ($22.3 billion) rescue package for Cyprus is worth roughly the same amount as a year’s output for the Cypriot economy.

As well as the money-laundering fears, doubts over debt sustainability in the medium term and a programme of privatisations demanded by the eurozone and International Monetary Fund had also proved sticking-points over recent months.

On debt sustainability, Anastasiades has already dismissed any suggestion that investors or bank depositors should be forced to take part of the burden directly, as some in Europe have suggested.

“Any reference to a ‘haircut’ on deposits or public debt is not accepted,” the president said recently, a point equally made by Sallis.

On privatisation, the signals in the Cypriot media have been less hostile than under the country’s previous Communist president.

As with neighbouring Greece’s repeated bailouts, the position of Germany during a general election year is expected to prove crucial for any accord on Cyprus.

European Union Economic Affairs Commissioner Olli Rehn hailed the breakthrough on money-laundering at a press conference after the talks wrapped up shortly after 1800 GMT.

He had told German news weekly Spiegel on Sunday that Cyprus might be forced to leave the eurozone if it did not get a bailout, warning that “if Cyprus became bankrupt in a disorderly way, the result would be almost certainly an exit from the eurozone.”

In a more positive sign for the eurozone and an easing of the debt crisis strains, Latvia earlier on Monday signed its formal bid to join the currency area.

Prime Minister Valdis Dombrovskis inked the document at a ceremony in Riga, paving the way for the Baltic state of two million to become the 18th eurozone member in January 2014.

The euro finance ministers’ talks broaden out on Tuesday to include the other 10 EU states that are not members of the euro, with discussion likely to be lively on planned bank bonus curbs which are staunchly opposed by Britain.

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