By Jan Strupczewski and Annika Breidthardt
DUBLIN, April 12 Euro zone finance ministers
backed a 10 billion euro bailout for Cyprus on Friday and the
European Commission said it would try to help the island's
economy grow again with better use of EU structural funds.
The ministerial support opens the way for several euro zone
countries, including Germany and Finland to seek approval for
the three-year bailout in national parliaments, so that loan
agreement with Nicosia can be signed by April 24.
The first tranche of the loan - 9 billion of which will come
from the euro zone and 1 billion from the International Monetary
Fund - will flow to Nicosia in mid-May.
The euro zone loans will have an average maturity of 15
years and maximum maturity of 20 years.
"The Eurogroup considers that the necessary elements are now
in place to launch the relevant national procedures required for
the formal approval of the ESM financial assistance facility
agreement for an amount of up to 10 billion euros, subject to
IMF's contribution," the euro zone ministers said in a
To cover its financing needs over three years, Cyprus itself
will have to come up with 13 billion euros of its own, with the
bulk of that sum coming from the closure of its Laiki bank and
the restructuring of the Bank of Cyprus.
The amount that Cyprus would need to contribute on its own
had been estimated a month ago at around 7 billion, but the two
sums were not directly comparable, EU Economic and Monetary
Affairs Commissioner Olli Rehn told a news conference.
"People have been comparing apples with pears and coming up
with oranges," Rehn said.
"If you look at these two figures of 17 billion ...and the
23 billion for programme financing, they are ... not strictly
comparable because the construction of the first and second, or
final package are different," he said.
"The 17 billion euros is related to net financing needs ...
while the larger figure, 23...is a gross financing concept," he
said. The larger number also includes additional buffers to
allow for weaker fiscal developments and additional costs in
banks, he said.
Cyprus will also raise taxes, cut spending and implement
structural reforms to improve its public finances and to be able
to eventually repay its debt, that is to fall to 104 percent of
GDP in 2020 from a peak of above 126 percent in 2015.
"The Eurogroup is confident that determined action in line
with the reform measures spelled out in the MoU will allow the
Cypriot economy to return to a sustainable path based on sound
public finances, balanced growth and financial stability," the
But international lenders now forecast the Cypriot economy
will contract almost 9 percent this year and almost 4 percent in
next year before returning to weak growth in 2015 and 2016.
Cypriot President Nicos Anastasiades appealed to European
Commission President Jose Manuel Barroso and European Council
President Herman Van Rompuy to do more to help revive growth in
Cyprus, possibly through the use of the EU's structural funds.
Such funds are paid out from the EU's long-term budget to
all of its underdeveloped regions to co-finance projects with
national authorities that help them expand and bring their
wealth to the EU average.
"We will try to reallocate structural funds so that we can
use them as effectively as possible to support the kind of
economic activities in Cyprus that will help the country to
return to recovery ... for growing and investment and
employment," Rehn said.
The flow of such funds is spread over the seven years of the
EU budget, but can be accelerated to increase the amount of
money in the earlier years at the cost of the outer ones -- this
method has been employed to help Greece already.