Thursday

18th Apr 2019

Cyprus economy to shrink 12.5% despite EU bailout

Cyprus' economy will shrink by 12.5 percent over the next two years and its government needs to sell part of its gold reserves in order to meet the conditions of an EU-IMF bailout, whose final details are to be agreed over the weekend.

According to internal papers prepared by the troika of international lenders and seen by Reuters and the Financial Times, Cyprus' total financing needs are now €23 billion, six billion more than was originally estimated last year.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The €10 billion loans from the eurozone and the International Monetary Fund (IMF) will not increase, however.

Only Cyprus' own contribution will do so.

The extra money is to come from wiping out deposits in Laiki Bank, revamping the pensions system, increasing taxes and selling €400 million worth of "excess gold reserves," the troika says.

Gold prices fell around one percent on Wednesday when the troika report was leaked. But a spokesman for the Cypriot central bank said that no gold sale had been "raised, discussed or debated" with the bank's board.

Cyprus' total gold reserves amounted to 13.9 tonnes at the end of February, according to the World Gold Council.

EU finance ministers meeting in Dublin on Friday and Saturday are to iron out the final details of the bailout, while national parliaments in Finland, Germany and the Netherlands are expected to vote on the programme in the coming weeks.

A spokesman for the German finance ministry on Wednesday (10 April) said the Bundestag will have a first look at the Cyprus bailout next week.

The German opposition has been just as tough on Cyprus' money laundering and tax haven policies as the coalition government and even threatened to derail the deal if it is not given enough reassurances that Cyprus' "business model" will be overhauled.

Even with its €10 billion bailout, the troika projects a steep fall in domestic consumption and a "non-negligible risk" of a series of households and companies going bankrupt.

This will in turn further aggravate unemployment, consumer confidence and the overall business environment, it says.

"Also, the deep restructuring of the Cypriot banking sector could have strong spill-overs on related professional business services and financial services exports," the document notes.

If revenues from tax increases and bank restructuring turn out to be less than expected, Nicosia cannot hope for more money from its eurozone peers, says the document.

Instead, the Cypriot government "has committed to stand ready to take additional measures," including more spending cuts.

Revenues from recently discovered offshore gas reserves may positively impact the bailout programme, but given that their exploitation remains uncertain due to a territorial conflict with Turkey, the troika did not include them in its projection.

503 Service Unavailable

Error 503 Service Unavailable

Service Unavailable

Guru Meditation:

XID: 342897587


Varnish cache server

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Counter BalanceSign the petition to help reform the EU’s Bank
  2. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  3. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  4. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  5. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  6. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  7. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  8. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  9. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  10. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  11. Nordic Council of MinistersNordic commitment to driving global gender equality
  12. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan

Latest News

  1. Romania drafts EU code on NGO migrant rescues
  2. Bulgaria, Hungary, and Malta shamed on press unfreedom
  3. EU drafts $20bn US sanctions list in aviation dispute
  4. Brunei defends stoning to death of gay men in EU letter
  5. US Democrats side with Ireland on Brexit
  6. Wifi or 5G to connect EU cars? MEPs weigh in
  7. How Brexit may harm the new EU parliament
  8. EU parliament backs whistleblower law

Join EUobserver

Support quality EU news

Join us