* Ministers meet to discuss Cyprus, no decision until late
* Around 1.6 bln euros left Cyprus in Jan. after talk of
* New Cypriot finance minister to present options for
By Jan Strupczewski
BRUSSELS, March 4 Euro zone finance ministers
will discuss how to fund a bailout of Cyprus on Monday with
differing views on whether to make bank depositors pay a share
of the cost.
No final decisions are expected until later in March.
Cyprus first requested a bailout in June last year but it
was not possible to reach an agreement with the last,
communist-led government. A new, conservative government has now
taken office and negotiations will intensify in the weeks ahead.
President Nicos Anastasiades promised on Thursday to work
for a swift deal to prop up the island's banks, which need
capital of around 8-10 billion euros. The total bailout,
including financing for general government operations and to
finance existing debt, could be up to 17 billion euros, equal to
Cyprus's annual economic output.
At Monday's meeting, euro zone ministers will examine a
variety of options to finance the bailout and ensure that it is
"sustainable" - that Cyprus can repay what it borrows.
Among the provisions expected in a programme is the
privatisation of state assets, starting with the island's
telecoms company which could raise up to 1.5 billion euros, and
the restructuring of the bloated banking sector.
German officials, backed by the Netherlands and Finland,
have also pushed for depositors in Cypriot banks to help pay for
the cost of the rescue, a process known as a "bail-in".
There are concerns in Berlin that Cyprus, with its low
corporate tax rate and liquid banking system, has become a
conduit for money laundering. Russian individuals and companies
have a high level of deposits in the banking sector.
Cyprus is concerned that any "bail-in" will spark the rapid
withdrawal of funds from the island and undermine its entire
business model, making the economic situation even worse.
Figures released last week showed around 1.6 billion euros
($2.08 billion) - a little over 2 percent of total deposits -
was withdrawn in January as talk of a "bail-in" intensified.
Cyprus's newly appointed finance minister, Michael Sarris,
called the bail-in idea a bad proposal.
"Really and categorically - and this doesn't only apply in
the case of Cyprus but for the world over and the euro zone -
there really couldn't be a more stupid idea," Sarris, a widely
respected economist, told reporters last week.
He will push that line in discussions on Monday, the head of
his office said, while adding that a variety of other options
were open to discuss to make a bailout viable, including an
extension of a 2.5 billion loan from Russia and the possibility
of Russia taking a controlling stake in Cyprus Popular Bank, one
of the hardest hit by the Greek debt crisis.
Olli Rehn, the European commissioner for economic affairs,
warned over the weekend that the prospect of Cyprus leaving the
euro zone remained a dangerous possibility, saying such a
prospect should be a concern even for big EU economies.
"Even if you come from a big EU country, you should be
aware that every member of the euro zone is systemically
relevant," Rehn was quoted as saying in Der Spiegel in a veiled
criticism of German Finance Minister Wolfgang Schaeuble, who has
questioned whether the tiny island is systemically relevant.
"If Cyprus becomes disorderly insolvent, it is very likely
that would lead to it exiting the euro zone," Rehn said.
While ministers will discuss Cyprus in detail on Monday, no
decision is expected until later in March, when an extraordinary
meeting will likely have to called to agree the rescue package.
Monday's meeting will also assess Ireland and Portugal, with
the possibility that both countries will be given slightly
longer to pay back the rescue loans they have already received.
While a small island economy, the difficulty with Cyprus is
finding a way to make a bailout sustainable so that any money
provided is repaid, especially given that public opinion in
countries such as Germany, Finland and the Netherlands.
A 17 billion euro 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 be too high for Cyprus.
The IMF and other officials believe Cyprus should have to
cut its debt-to-GDP ratio to just below 100 percent, but Cyprus
is likely to push back against that, saying 120 is manageable.