Cyprus Mail
Cyprus

Scant support for tweaking bailout deal

Eurogroup chairman Dijsselbloem and Cyprus Finance Minister Georgiades

By Elias Hazou

CYPRUS found scant support yesterday for any changes to its bailout programme, with eurozone finance ministers and officials dismissing the idea.

“Determined implementation of the programme is indispensable,” Jeroen Dijsselbloem, who chairs the Eurogroup meetings, told a news conference after the Eurogroup meeting, when went on until after midnight.

President Nicos Anastasiades had written to European Union leaders requesting modifications to the terms of the bailout. “It is my humble submission that the bail-in was implemented without careful preparation,” the President said in the letter.

The letter was discussed at last night’s Eurogroup meeting but the comments made ahead of the finance minister’s talks to set bank bailout rules for the bloc, indicated early on that little support would be forthcoming from Cyprus’ EU partners.

Going into last night’s meeting, European Economic and Financial Affairs Commissioner Olli Rehn said the bailout programme had only recently been agreed and “we will work on the basis of that programme.”

Luxembourg Finance Minister Luc Frieden likewise said Cyprus could not expect changes to its bailout deal.

It is “very unlikely that the Cyprus compromise can be opened up or another solution introduced. It was the best solution for Cyprus in the circumstances,” he said.

The problems in Cyprus were caused not by the bailout programme, but by its troubled financial sector, Dijsselbloem said earlier as he ruled out any more money for the island.

“It wouldn’t be a good thing for Cyprus because loans should also be repaid. This was the reason why we said the loan shouldn’t be more than 10 billion euros,” Dijsselbloem said.

“I assume that there is great incomprehension among all the colleagues,” Austrian Finance Minister Maria Fekter said. “I cannot imagine there is an alternative proposal that is better than what we worked out arduously and consensually.”

Officials from the ‘troika’ of international lenders – ECB, IMF and European Commission – also rejected the idea of tweaking the rescue package.

“There is no viable alternative than now implementing 100 per cent the strategy outlined in the [Cypriot] memorandum of understanding,” European Central Bank executive board member Joerg Asmussen said.

The ECB official went on to urge Cyprus to make every effort to restore confidence in its financial system, in order to implement the strategy outlined in the memorandum of understanding.

Other than Cyprus, euro-area finance ministers were set to hold a complicated debate on whether EU banks should be recapitalised directly through the European Stability Mechanism (ESM). The talks extended late into the night.

The island secured a €10bn rescue package in April to avert bankruptcy, in exchange for downsizing its over-leveraged banking sector.

It was a take it or leave it deal with the European Central Bank (ECB) threatening to turn off the tap of emergency liquidity to Laiki, which would have meant its immediate collapse and possibly that of Bank of Cyprus soon afterwards.

Thousands of uninsured depositors lost their savings in the wake of the ‘bail-in’, a first in the history of the eurozone debt crisis.

But the capital controls imposed to prevent a drain on remaining deposits have put a chokehold on transactions.

In his letter to EU leaders, the President had suggested the rescue package had not been well thought-out, resulting in a shock for the Cyprus economy, driven mainly by its financial services sector.

“An alternative, longer term, downsizing of the banking system away from publicity and without bank runs was a credible alternative that would not have produced such a deep recession and loss of confidence in the banking system,” the President said.

The government later clarified that it was not seeking to amend the bailout deal or additional loans, but rather to re-jig some of the aspects of the agreement.

In his letter, Anastasiades said the ‘bail-in’ of the two Cypriot banks, agreed back in March, made no distinction between long-term deposits earning high returns and money flowing through current accounts, such as company working capital.

The IMF meanwhile yesterday confirmed receipt of Anastasiades’ missive and said the organisation intended to respond to it.

At a press briefing in New York, IMF spokesman Gerry Rice declined to be drawn further, saying only that the IMF treats bailout programmes “on an ongoing basis.”

All rescue packages – not just Cyprus’ – are evaluated every three months, Rice said, adding that bailout programmes are “dynamic.”

However, Rice noted the government’s statement that it intends to fully comply with the terms of the loan agreement.

The IMF will be contributing up to €1bn of the total package.


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