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Euro ministers in bid to finalise Cyprus bailout

12 april 2013, 14:22
0
EU Commissioner for Economic and Monetary Affairs Olli Rehn. ©AFP
EU Commissioner for Economic and Monetary Affairs Olli Rehn. ©AFP
Eurozone and EU finance ministers meet in Dublin from Friday to finalise the Cyprus bailout and consider extending debt repayment dates for Portugal and Ireland, while also tackling how to stamp out tax fraud, AFP reports.

Their meeting comes a day after Cyprus made the shock announcement that the cost of its EU-IMF bailout had surged to 23 billion euros ($30 billion), putting the teetering economy in danger of collapse and further endangering big bank deposits.

Ministers from the 17-nation single currency area gather first on Friday morning, to be joined later by their 10 non-euro, European Union peers. Europe's central bankers will enter the fray thereafter for talks wrapping up on Saturday.

First up for the ministers, will be to sign off on the conditions Cyprus must meet in terms of cuts, fundraising and reforms in exchange for some 10 billion euros of loans from its eurozone partners and the International Monetary Fund (IMF).

A first payment is due early in May. Nicosia needs access to the cash soon, it says, with 75 million euros urgently required to cover public-sector salaries.

The Cyprus bailout has proved to be something of a eurozone watershed, with small bank depositors, who had thought themselves protected by an EU guarantee, at one point being asked to cough up part of their savings to help fund the rescue.

The move sparked uproar in Cyprus and beyond, forcing officials to beat a retreat and spare those savers with deposits under 100,000 euros.

Those savers above that amount, however, are likely to take a very considerable hit, perhaps as much as 60 percent, to pay for the dismantlement of the island's No. 2 bank Laiki and the radical restructuring of Bank of Cyprus, the biggest.

The restructuring of the banking sector is expected to yield up to 10.6 billion euros, part of a total 13 billion euros which the nation must contribute to its bailout.

Another billion is to be gleaned from a corporate tax rise to raise 600 million euros and sale of excess gold reserves expected to fetch 400 million euros.

The previous contribution from Cyprus was initially put at seven billion euros. But draft European Commission documents leaked Thursday showed that had to nearly double because of the severe impact on the country's economy.

"It's a fact the memorandum of November talked about 17.5 billion (euros) in financing needs. And it has emerged this figure has become 23 billion," government spokesman Christos Stylianides said later.

That means Cyprus will now have to find 6.0 billion euros more than the 7.0 billion euros mooted in a preliminary agreement reached on March 25 in order to secure an EU-IMF contribution of 10 billion euros.

The Dublin meeting will also discuss a report from the Troika - European Commission, European Central Bank and IMF -- stating that the bank restructuring will put Cyprus into deep recession for two years, with its gross domestic product expected to shrink by about 12.5 percent over the next two years.

After months in which the EU debt crisis appeared to be on the wane, the situation in Cyprus has reignited concerns despite its small size.

Worries that Slovenia may need a bailout refuse to go away and the political deadlock in Italy has fuelled worries that the eurozone's third largest economy may not be able to stay on top of its massive debt.

Another concern is the rejection by Portugal's Constitutional Court of a number of austerity measures which the government had adopted under the terms of its 78-billion-euro bailout, leaving it hard-pressed to now make up the shortfall.

Alongside host Ireland, Lisbon is seeking a 15-year relaxation of the repayment terms of its rescue loans, which would ease the strain on its finances.

A Troika report sees a possible compromise at seven years for Portugal.

Meanwhile a renewed drive to stamp out tax fraud, launched amid a scandal embroiling French President Francois Hollande's government, is also likely to feature prominently.

Inspired by a 2010 US law requiring automatic reporting of bank account information, Britain, France, Germany, Italy and Spain this week agreed to work on setting up a multilateral information exchange facility they hope will serve as a template for a wider system.

The complete implementation of EU rules on automatic sharing of information on EU residents with bank accounts in other countries has been held up by Austria and Luxembourg, although the latter has now signalled it is prepared to change.

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