Ministers look to March for Cyprus bailout

11.02.13 @ 10:01

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - The terms of a €17 billion bailout for Cyprus and direct recapitalisation of European banks top the agenda of finance ministers in Brussels on Monday (11 February).

  • Finance ministers will discuss a Cypriot bail-out (Photo: European Commission)

The meeting of the 17-member Eurogroup will be the first under the chairmanship of Dutch finance minister Jeroen Djisselbloem, confirmed last month to replace Luxembourg's Jean-Claude Juncker, who had held the role since the creation of the club in 2005.

Ministers are also expected to look at the prospect of the European Stability Mechanism (ESM) offering direct support to ailing banks.

Negotiations on a €17.5 billion rescue package for Cyprus began in November, with the Cypriot banking sector alone expected to need around €10 billion to stay afloat.

The talks have been complicated by the country's relationship with Russia, however.

On the one hand, Russia is helping, with Moscow expected to delay the maturity of last year's €2.5 billion loan to the island country.

But on the other hand, there are concerns about Cyprus' status as a haven for wealthy Russians, some of whom are said to use its banks to launder money.

With a new government set to take office in Cyprus in early March, following presidential elections on 17 February, EU officials are playing down the prospect of a swift agreement.

Polls indicate that the centre-right opposition leader Nicos Anastasiades, with 10-to-15 percent lead over his nearest rival, is to become the country's next President.

The incumbent, Demetris Christofias, a communist who opposes privatisation of Cypriot state-owned firms, is not seeking re-election.

One EU contact said that a decision on the bailout will most likely be reached at the end of March.

The official pointed out that the so-called troika - composed of officials from the European Central Bank (ECB), the International Monetary Fund and the European Commission - is not planning to meet with Cypriot ministers for the time being.

There is "not going to be a deal any time soon," the EU source said.

Another EU official told this website there are "differing signals on the scale of implementation" of anti-money laundering laws in Cyprus.

The senior source said the EU is keen for an independent auditing company to check if Cyprus is living up to its commitments.

But for his part, Joerg Rasmussen, the German member of the ECB's executive board, pointed to the risks of letting Cyprus fail.

"There must be no doubt about this: if Cyprus gets no external help, it will slide into default … [putting] at risk progress made last year on the euro crisis - and that would have high financial and political costs," he said in German daily Handelsblatt on Monday.

The other point on the Eurogroup agenda - bank recapitalization - is also proving to be thorny.

Talks are expected to focus on burden sharing - who will foot the bill for bank losses which emerge after it comes under the supervision of the ECB and appears on the balance sheet of the EU's bailout fund, the European Stability Mechanism (ESM).

Under the ESM treaty agreed by EU leaders in 2011, the bailout fund has access to €500 billion.

The bulk of the ESM's money has been earmarked for helping EU governments who can no longer borrow money on open markets, with just €100 billion set aside for direct help to banks.

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