Cyprus asks Brussels for more money as bailout costs soar
Details of €10bn rescue agreed at Dublin meeting but talk of larger bailout dismissed
Jeroen Dijsselbloem, president of Eurogroup takes his seat at an informal meeting of economic and finance ministers at Dublin Castle this morning
Cyprus has written to the European Commission seeking “further financial aid” after it emerged the country’s overall financial requirements will b e €23 billion, rather than €15.8 billion originally estimated.
The country’s president Ni cos Anastasiades said he had written to European Commission chief Jos é Manuel Barroso and council head Herman van R ompuy calling for the need to change Europe’s policy towards the republic “by granting further financial aid in view of the critical times we are going through as a result of the economic crisis [as well as] . . . the measures which have been imposed on us.”
However, hardline Dutch finance minister and euro group president Jeroen Dijsselbloem, speaking in Dublin yesterday, pre-empted this effort to elicit understanding and compromise by stating, “The programme is going to be €10 billion as agreed.”
The €10 billion rescue for Cyprus is now ready to be ratified by national parliaments after euro zone officials assessed the terms of the bailout in Dublin today.
Cyprus is now expected to raise €13 billion while the European bailout fund will keep to the figure of €9 billion and the International Monetary Fund will provide €1 billion.
The international loans will be spent on recapitalising the dramatically diminished banking sector, settling maturing government debt, and covering the fiscal needs of the government from 2013 until 2016.
Cyprus is expected to secure €10.6 billion from the resolution of Laiki Bank, the second largest, and levies on bonds and deposits over €100,000 in Laiki and the Bank of Cyprus. Cyprus is required to raise €600 million by increasing corporate tax from 10 per cent to 12.5 per cent and double the capital gains tax to 30 per cent. Cyprus is also expected to sell gold worth €400 million from its reserves, roll-over €1 billion in domestic debt, and secure €1.4 billion by privatising semi-public companies.
Austerity bills so far tabled in parliament cover extension of public sector pay cuts, pension reductions, raising property tax, reducing healthcare costs, and merging municipalities.
Russia, which granted Cyprus a €2.5 billion loan in 2011, has agreed to lower the interest rate and extend the maturity, saving €100 million.
Cypriots are shocked by the cost they must bear of a bailout which economists, bankers and the business community believe is deliberately designed to wreck the economy.
A former senior official spoke for many when he told The Irish Times that the euro group/IMF terms would deprive business of liquidity, forcing many firms to close. He said imposing haircuts on large deposits made it impossible for their owners to pay loans and mortgages or trade. The conversion of confiscated funds into shares will ultimately give Russians, who hold 22 per cent of funds in the two main banks, a large stake in the surviving Bank of Cyprus, a development that will hardly be welcomed by the euro group.
In a bid to ease the more draconian emergency restrictions, the minister of finance has raised to €300,000 the sum that can be transferred in internal business transactions, loosened controls on foreign transactions, and raised the amount of cash individuals can carry out of the country.
The sum an individual can access remains €300 a day, or €1,500 a week.