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28th Aug 2016

Germany wants Russian contribution to Cyprus bailout

  • Moscow: Russia has strong financial interests in Cyprus - it should also share the bailout burden, says Germany (Photo: wikipedia)

The German government wants Russia to chip in to the bailout currently being discussed for Cyprus - a eurozone country whose banking system has generously accommodated Russian businessmen.

"The position of the German government is that it would be welcome if Russia extended its aid to Cyprus, as it has done in the past," a German official told this website on Tuesday (15 January).

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Earlier that day, news agency Bloomberg said German finance minister Wolfgang Schaeuble told MPs in a closed meeting that Moscow must contribute to the eurozone bailout for Cyprus.

Helping out Cyprus - whose banks, according to a leaked German intelligence report, are guilty of money laundering for Russian oligarchs and organised crime - is controversial for German politicians. Chancellor Angela Merkel warned last week that the island nation must not expect "special treatment" and that she will push for strict conditions for any international loan.

Russia already helped Cyprus to avoid bankruptcy in 2011 with a €2.5 billion loan for its banks, which had to stomach huge losses on loans to Greece.

Another Russian contribution or an extension of the repayment deadline for the 2011 loan would lower the sum which Cyprus needs to borrow from eurozone countries.

No official figures have been put forward yet, with the results of an audit of Cypriot banks' needs by US consultancy Pimco expected at the end of this week. But the figure discussed by EU diplomats is €17 billion, almost as much as the total yearly economic output of the small country (€18bn).

A €17 billion bailout would mean that Cyprus' debt - currently over 70 percent of GDP - would reach 170 percent, way more than the troika of international lenders has ever accepted as "sustainable" for other bailout states.

Greece last year reached a debt of 170 percent of GDP, becoming the subject of months of wrangling in the troika on how to reduce the burden over the next few years. The International Monetary Fund insisted that eurozone governments must take losses on Greek loans.

A similar haircut scenario for Cyprus is highly unlikely.

Instead, the troika has so far pressed for Cyprus to privatise as many firms as it can and to use the new revenue to reduce the rescue package to be drawn from the eurozone's bailout fund (the ESM).

But the current Cypriot president, Demetris Christofias, the EU's only Communist leader, has fiercely opposed privatisation.

His position is one reason why a decision on the bailout is unlikely to be taken before presidential elections take place in Cyprus on 17 February - Christofias is not standing for re-election, while the frontrunner, Nicos Anastasiades, has already pledged to do what it takes to get international help.

Anastasiades, who is affiliated with the centre-right European People's Party (EPP), was last week endorsed by Merkel at an EPP meeting on the island.

She warned Cyprus not to expect a quick deal, as talks on the bailout are "by far" not concluded, however.

For his part, Anastasiades said there are "visible dangers to [a bailout] delay," with the Moody's ratings agency downgrading Cyprus further into junk territory due to the threat of a default one day before he spoke.

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