BRUSSELS Feb 28 Euro zone finance ministers
expect talks on a bailout for Cyprus to gain new momentum on
Monday, with a view to a deal with the island's new government
at the end of March, a senior euro zone official said.
New President Nicos Anastasiades promised on Thursday to
work for a swift deal for to prop up the Mediterranean island's
banks, which need capital equal to Cyprus's annual economic
The Eurogroup of euro zone finance ministers meet on Monday
to discuss the bailout, estimated at up to 17 billion euros ($22
billion), which had been blocked by the previous
administration's refusal to sell state assets to cut debt.
"Monday will be about setting out the large items and seeing
what the position of the new government is with regards to items
from anti money laundering to privatisation," said the official.
"We will then have a clear picture of the timelines for
programme negotiations and conclusions," said the official, who
has close knowledge of the preparations for the meeting.
The talks on Monday could clear the way for lenders from the
International Monetary Fund, the European Central Bank and the
European Commission - dubbed the troika - to go to Cyprus and
start negotiating details next week, he said.
"I strongly believe that we will be in a position to reach a
conclusion by the second half of March," he said, adding many of
the elements for the deal, especially fiscal policy, have
already been implemented.
The difficulty with Cyprus is finding a way to make a
bailout sustainable so that any money given is repaid,
especially given that public opinion in countries such as
Germany, Finland and the Netherlands is growing increasingly
opposed to such aid.
German Finance Minister Wolfgang Schaeuble said on Wednesday
that before the euro zone's bailout fund, the European Stability
Mechanism (ESM), can help Cyprus, the troika had to establish if
Cyprus was systemically important for euro zone stability.
Politicians from Germany have repeatedly expressed
misgivings in recent months about financial transparency on the
island, and whether its low-tax status in the EU could possibly
aid money laundering for rich Russians. Cyprus says it has a
clean bill of health.
Other euro zone officials said there was no question whether
Cyprus was systemically relevant to the currency bloc.
"The European Union and the euro are systems and all parts
are linked to the other, that is quite clear," European
Commission President Jose Manuel Barroso said in Dublin.
"Cyprus is certainly a small country but it is part of the
euro area and should be treated as part of the euro area," he
The island needs 8-10 billion to recapitalise its banks and
7 billion to repay loans and finance government operations.
Such a rescue would increase Cyprus's debts to around 145
percent of GDP, a level considered unsustainable. Greece's
bailout calls for it to cut its debt-to-GDP ratio to 120 percent
by 2020, but that would also be unsustainable for Cyprus.
One of the options under discussion is for those holding
deposits in excess of 100,000 euros in Cypriot banks to take a
loss if their bank is wound down, in order to scale down the
oversized Cypriot financial sector.
President Nicos Anastasiades ruled out any haircut on
depositors on Thursday, as well as any sovereign debt
"I want to be absolutely clear. Absolutely no reference to a
haircut on public debt or deposits will be tolerated. Such an
issue isn't even up for discussion," Anastasiades said.
But European Central Bank's executive board member Benoit
Coeure, in an interview with Reuters on Wednesday, made a more
qualified statement saying there were no plans for a general
'bail-in' where depositors would give up some of their funds.
Pressed to say if that left open the possibility of a
narrower surrender of deposits above the EU-guaranteed threshold
of 100,000 euros, he said: "There needs to be an appropriate
burden-sharing in the programme because we need to achieve debt
sustainability. But no bail-in across the board.
"I don't pre-judge any instruments because the vocabulary
matters and there are many ways to achieve burden-sharing."
ECB data showed that in January private-sector deposits in
Cypriot banks fell just over 2 percent and stood at 47.4 billion
euros at the end of the month.
"There has been a constant monitoring of capital and deposit
movements and I see no reason for any short or medium term
concerns there," the senior euro zone official said.