* Cypriot President says bailout will bring pain
* Says banks, regulator were reckless to Greek exposure
* Cypriot banks will need up to 10 bln euros to recap
NICOSIA, Dec 4 Cyprus's president on Tuesday
warned islanders of fiscal pain ahead under an international
bailout he said could have been avoided but for profligate banks
and an ineffective regulator.
Cyprus, the euro zone's smallest economy after Malta, has
reached a preliminary deal with the IMF and the EU to borrow up
to 17.5 billion euros ($22.90 billion) - almost equivalent to
the country's entire annual output.
Demetris Christofias, who is leading the Cypriot side in aid
talks, said Cyprus had no choice but to turn to outsiders for
help after its largest banks took huge losses on exposure to
debt-crippled Greece and looked to the state for aid.
"We took the decisions we did with heartfelt pain,"
Christofias said in a televised public address.
Looking sombre in the pre-recorded speech and appealing for
public unity, he said: "Decisions of the banks, and inadequate
supervision by the central bank, are costing Cyprus many
billions of euros."
Christofias, a communist who was once Cyprus's most popular
politician, has taken the brunt of public discontent at
perceived botched handling of the economic crisis on an island
which prided itself for pulling through post-war turmoil after
its split in a 1974 Turkish invasion triggered by a brief Greek
He is not seeking a second term in an election scheduled in
February, and his AKEL communist party is trailing in opinion
A preliminary deal between Cyprus and lenders has set 10
billion euros in aid to banks, but this is provisional pending
an interim assessment by external consultants expected by Dec.
In addition, Cyprus will over the four years to 2016 have to
reschedule an estimated 6.0 billion euros in maturing debt, and
will also require 1.5 billion euros to plug deficits until then,
finance ministry sources say.
Authorities have pledged to cut salaries in the public
sector by between 6.5 percent and 12.5 percent, suspend wage
indexation, introduce pension reform and extend retirement ages,
introduce new tax calculation methods for real estate and
incrementally increase taxes like VAT.
"I am the last person who will attempt to idealise this
memorandum and attempt to whitewash things ... there are many
measures which are truly painful, and measures which, under
other circumstances I would not even discuss," Christofias said.
Christofias has repeatedly blamed lax supervision by the
former administration of Cyprus's central bank and reckless
expansion into Greece by the banks themselves for the mess the
economy is in.
The former regulator, Athanasios Orphanides, denies the
accusation. He has said Christofias failed to heed repeated
warnings about fiscal slippage and bore some responsibility for
the banks taking a hit when EU leaders decided to write down
Greek bond values in late 2011.
Christofias did not refer specifically to this decision in
his speech. "We have never claimed infallibility," he said.
"This however cannot be an excuse for blaming everything on the
president and the government."
($1 = 0.7642 euros)
(Reporting By Michele Kambas; editing by Ron Askew)