October 19, 2012 / 3:55 PM / 8 years ago

UPDATE 1-Cyprus wants ESM ability to recapitalise banks directly

NICOSIA, Oct 19 (Reuters) - Cyprus wants the euro zone’s ESM bailout fund to be able to recapitalise its banks directly, it said on Friday.

Finance Minister Vassos Shiarly told reporters Cyprus wanted to be able to transfer any assumed debt for the recapitalisation of its banks to the European Stability Mechanism, once it became active.

The issue would be of crucial importance to the island in its negotiations with international lenders, he said.

“This will be one of our firm demands in the final discussions with the troika,” Shiarly said, referring to lenders from the European Commission, the International Monetary Fund and the European Central Bank. “It is crucial for Cyprus.”

Cyprus sought international help after its banking sector was battered by its exposure to debt-crippled Greece earlier this year. Fellow euro zone members Greece, Portugal and Ireland have also taken international aid and Spain has received help specifically for its banking sector.

Some estimates put the bill for recapitalising banks at 15 billion euros — almost equalling Cyprus’s 17 billion euro ($22 billion) GDP and raising questions about debt sustainability.

Earlier Friday German Chancellor Angela Merkel said banks could not be retrospectively recapitalised via the ESM, which is the euro zone’s permanent bailout fund..

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