Monday

9th Dec 2019

Cyprus bailout delayed amid debt restructuring reports

Cyprus bonds plunged to a three-month low on Thursday (20 December) after the International Monetary Fund reportedly demanded a Greek-style debt restructuring before agreeing to a bailout.

Earlier that day, German newspaper Sueddeutsche Zeitung reported that the IMF would only agree to participate in a bailout programme for the island nation if part of its debt is written off first.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 30-day free trial.

... or join as a group

  • Cyprus joined the euro in 2008 (Photo: Dogfael)

While some EU countries agree with the IMF that this is the only way to bring the country back on track, others are wary that by repeating the Greek haircut scenario - which earlier this year was repeatedly presented as a "unique", "one-off case", trust in the eurozone would diminish further.

"The situation in Cyprus is much worse than it is in Greece," one high-ranking EU official told Sueddeutsche.

Meanwhile, Cypriot finance minister Vassos Shiarly said the IMF "never raised the subject of a debt haircut."

Contacted by this website, a spokeswoman for the IMF could neither confirm nor deny the report.

“Discussions continue between the Cypriot authorities, the IMF and the European partners on determining a financing solution for the country that is consistent with debt sustainability. We do not expect the discussions to conclude this year,” the IMF spokeswoman said in an emailed response.

Cyprus had warned that it would be running out of money in a matter of days in the absence of a bailout deal of about €17 billion and the government already had to borrow €250 million from pension funds to pay its civil servants.

On Wednesday, the Cypriot parliament approved the 2013 budget with sweeping spending cuts likely to be demanded by the troika of international lenders - including the IMF - if the bailout is approved.

But asking for a so-called haircut on the country's debt deals a blow to hopes of a quick deal, as bondholders will first have to negotiate. In Greece's case, the process took almost half a year.

In addition, Germany is also sceptical a deal can be reached anytime soon. Senior officials in Berlin have indicated negotiations are not "serious enough" for the government to go and ask the Bundestag to approve a bailout for Cyprus.

A leaked report by the German intelligence service raised questions about money laundering for the Russian mafia in the small country, which serves as a lucrative tax haven within the EU and eurozone.

Cyprus joined the euro in 2008 along with Malta. Its banking sector is heavily exposed to the Greek troubles. Cypriot banks took losses on their Greek bonds when the Greek "haircut" was agreed earlier this year.

Out of the €17 billion, more than half would go to the country's cash-strapped banks. Russia has already bailed out Cyprus once and a possible solution out of the impasse, as reported by Sueddeutsche, would be for Moscow to lend another €5 billion to the IMF, which in turn would pay it to Cyprus, so that no actual IMF money would be involved.

Merkel warns Cyprus not to expect special treatment

German Chancellor Angela Merkel has warned Cyprus it should not expect special treatment when negotiating the terms of its bailout, which she suggested would not be concluded anytime soon.

Feature

Promises and doubts: Africa's free-trade adventure

The EU is hoping that a continent-wide free trade agreement in Africa will help lift millions out of poverty and help solve issues of security and migration. But its message of values and equal partnership do not resonate with everyone.

Interview

EU Africa envoy: Europe needs to look beyond migration

Europe's obsession with migration from Africa means it risks losing out the continent's potential when it comes to trade, says the EU's ambassador to the African Union, Ranier Sabatucci. "Africa is a growing continent, it is the future," he says.

News in Brief

  1. Greece denies access to fair asylum process, report says
  2. Report: Self-regulation of social media 'not working'
  3. Turkey: Greek expulsion of Libyan envoy 'outrageous'
  4. Merkel coalition may survive, says new SPD co-leader
  5. Von der Leyen Ethiopia visit a 'political statement'
  6. Over 5,500 scientists ask EU to protect freshwater life
  7. Iran defies EU and UN on ballistic missiles
  8. Committee of the Regions: bigger budget for Green Deal

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  2. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  3. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  4. Nordic Council of MinistersNordic Climate Action Weeks in December
  5. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  6. Nordic Council of MinistersBrussels welcomes Nordic culture

Latest News

  1. Russia makes big promises to Arctic peoples on expansion
  2. UK election plus EU summit in focus This WEEK
  3. Migrants paying to get detained in Libyan centres
  4. Searching for solidarity in EU asylum policy
  5. Will Michel lead on lobbying transparency at Council?
  6. Blood from stone: What did British PR firm do for Malta?
  7. EU Commission defends Eurobarometer methodology
  8. Timmermans warns on cost of inaction on climate

Stakeholders' Highlights

  1. UNESDAUNESDA appoints Nicholas Hodac as Director General
  2. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  3. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  4. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  5. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  6. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues

Join EUobserver

Support quality EU news

Join us