Cyprus expects EU bailout deal in next 10 days

A "troika" of international lenders - the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), led by commission official Maarten Verway - landed in the Cypriot capital on Thursday.

A Nicosia-based Cypriot source told EUobserver talks are expected to wrap up by Monday at the earliest or by the end of next week at the latest.

He said the big question is whether or not to split the bailout - likely to be in the range of €8 billion to €13 billion, with an absolute maximum of €15 billion - into two parts.

He said the IMF wants the EU's Luxembourg-based bailout fund, the ESM, to directly recapitalise Cypriot banks. The rest of the money would be a loan to the Cypriot government, as with Ireland or Greece. But the ECB wants the Cypriot exchequer to carry the whole burden.

He added the troika wants Cyprus to slash government spending in order to get back in the black. But Cyprus wants to boost income tax instead.

"For the troika to come to Cyprus now it means they are ready for an agreement," the contact said.

"The talks are just starting. It's too early to comment on them," a commission spokeswoman noted.

Cyprus got into trouble over its banks' exposure to Greek debt and because an explosion last year - literally, at an ammunitions dump and nearby power station - blew a hole in its budget.

It got a cheap €2.5 billion loan from Russia, an important financial partner, to help tide things over.

But prospects of extra Russian money did not materialise.

To make matters worse, its Russian connection caused embarrassment this week when the German foreign intelligence service, the BND, leaked a report to German magazine Der Spiegel saying Russian oligarchs and crime bosses have stashed €20 billion in Cyprus' banks.

Zooming in on one case, Hermitage Capital, a UK-based firm, has filed a complaint with Cyprus' attorney general to seize €24 million worth of Russian money on the island.

The firm says it was embezzled from Russian taxpayers by tax officials and that when its lawyer, Sergei Magnitsky, exposed the scam, he was tortured to death in prison.

For their part, the EU commission and Cyprus say only that Cyprus is a signatory to international anti-money-laundering treaties.

"It's a non-issue and it won't come up in the troika talks," the Cypriot contact quoted above said.

But for his part, Magnitsky's former employer, Hermitage Capital chief Bill Browder, says it is not OK.

"Corrupt Russian officials working together with organized criminals used Cyprus to launder a significant part of the biggest tax refund fraud in Russian history. We are looking forward to a robust investigation in Cyprus and seizure of the dirty money regardless of who is providing bailout funds to the country," he told EUobserver.