Cyprus begins EU presidency amid bailout turbulence

Tue, Jul 3, 2012, 01:00

ANALYSIS:Cyprus says six-month presidency will not be blown off course by its request for external aid

CYPRUS HAS taken charge of the EU’s rotating presidency, a complex task which begins only days after it became the fifth country to seek a euro zone bailout.

The Cypriot presidency, the last before Ireland takes over next January, follows Denmark’s well-received turn in charge of Europe’s legislative agenda.

The Danish presidency, seen as a model for Ireland’s, oversaw an agreement between governments and the European Parliament on the regulation of financial market derivatives and a deal to reform Europe’s fishery policy.

Agreement was also reached on the “two-pack” legislation to toughen fiscal oversight in the euro zone, on new capital rules for banks and on the regulation of credit rating agencies.

As Denmark is not in the euro, however, the country does not have a central role in the battle against the debt crisis.

Denmark’s presidency followed those of non-euro countries Poland and Hungary, meaning Cyprus is the first member of the single currency to hold the presidency since Belgium in the second half of 2010.

Cyprus insists its six-month presidency will not be blown off course by the request last week for external aid, which came as the country’s banks struggle to overcome huge losses on their investments in Greece.

For the EU and for Cyprus itself the presidency carves out new ground. Cypriot president Demetris Christofias is the only communist leader of a European state. The Cypriot presidency of the EU, which began on Sunday, is its first since it joined the EU in the 2004 enlargement.

The work of all rotating presidencies was downgraded by the 2010 Lisbon Treaty, under which European Council chief Herman Van Rompuy leads EU heads of state and government and Cathy Ashton runs Europe’s foreign policy.

However, the rotating presidency still oversees regular meetings of Europe’s ministerial councils and shepherds draft laws on a multitude of topics through an arcane legislative process.

Although member states typically deploy their presidencies to project a positive image of themselves to Europe and the world, Cyprus conceded last week that it could not confront its banking problem on its own.

Even as the country sought help from the euro zone it made no secret of its discussions with Russia and China on the possibility that it might receive emergency bilateral aid from them instead. Moscow gave Cyprus a €2.5 billion loan last year, a transaction that reflected the preponderance of Russian investment in Cypriot banks.

As the financial crisis in Greece worsens, the struggle to deal with drastic losses it prompted in Cypriot banks overshadowed preparations for the presidency.

A formal application for a rescue package from the European Financial Stability Facility or European Stability Mechanism bailout funds is still awaited, meaning there is still no clarity as to exact amount of aid the country needs.

“It’s a very fluid situation and the coming days hopefully will allow us to have a more clear view,” said Andreas Mavroyiannis, deputy minister for European affairs. Mr Mavroyiannis said Cypriot banks lost €3 billion in the restructuring of Greek bonds last February, adding that branch and other operations in Greece gave the banks an overall exposure of some €23 billion.

“The overall climate is of course not the best both in Europe in general and in my own country,” he told reporters in Brussels. “You know that we have our own economic difficulties but we will not allow all those factors to distract us from carrying out our duty in a very decent, modest yet ambitious way.”

Cyprus hopes to push forward the negotiation of EU’s budget round for the 2014-2020 period, saying this will be its main priority and that it may table a draft budget proposal at a summit in October.

Diplomatic observers believe, however, that it will probably fall to Ireland to finalise the overall deal after the Government takes over from Cyprus next year. Given the pressures imposed by the debt crisis, much of the legislation Cyprus hopes to advance centres on the drive to toughen Europe’s economic governance and diverse laws on financial regulation.

Following last week’s summit deal to establish a pan-European system of banking regulation, it will also fall to the country to take charge initially of draft laws to bring that about.

Mr Mavroyiannis said Cyprus will not seek to use the presidency to pursue “national issues” with Turkey, which occupies the northern third of the island.

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