UPDATE 1-Cyprus rejects losses for depositors, Eurogroup skirts issue

Mon Feb 11, 2013 2:21pm EST

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(Adds comments after euro zone ministers' meeting)

BRUSSELS Feb 11 (Reuters) - Cyprus's finance minister drew no clear support on Monday from his euro zone peers for his refusal to impose losses on bank depositors as part of the country's bailout programme.

Cyprus needs some 17 billion euros in a loan programme from the euro zone to recapitalise its banks, which were hit by the Greek sovereign debt restructuring, and finance government spending over the next three years.

Because such a bailout would almost equal the country's gross domestic product, euro zone officials are examining various ideas for how to make the island's debt sustainable.

Some proposals have been strongly opposed by the European Central Bank, the European Commission and some euro zone countries, such as imposing losses on depositors in Cypriot banks or restructuring Cypriot sovereign debt.

"I would say that the bail-in of depositors is a grossly exaggerated possibility, unlikely to happen, we will not accept it under any circumstances and I don't think it creates any way forward," Cypriot Finance Minister Vassos Shiarly said on his way in to euro zone finance ministers meeting to discuss elements of an emergency lending programme.

He was responding to a newspaper story which listed losses for bank depositors as one option under consideration in setting up a bailout for Cyprus on the basis of a memo prepared for the meeting.

EU Economic and Monetary Affairs Commissioner Olli Rehn told a news conference after the meeting of the ministers that the Commission had not proposed any solutions that would involve a Cypriot sovereign debt restructuring or imposing losses on depositors.

But the chairman of euro zone finance ministers Jeroen Dijsselbloem, asked if he could exclude the idea that depositors in Cyprus would lose money, avoided a direct answer.

"Tonight where Cyprus is concerned we zoomed in on the issue of anti-money laundering and didn't go into any possible, or not possible, elements of a programme so I can't go into these elements with you," Dijsselbloem said. (Reporting By Jan Strupczewski; Editing by Hugh Lawson)

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