Wednesday

7th Jun 2023

Money laundering probe boosts prospect of Cyprus bailout

  • Cyprus - EU officials refused to rule out private sector bank losses (Photo: StockMonkeys.com)

The EU has moved closer to a €17.5 billion bailout for Cyprus after the Mediterranean island on Monday (4 March) agreed to audit its banks to assess implementation of anti-money-laundering rules.

Following the meeting of eurozone finance ministers, Eurogroup President Jeroen Djisselbloem said it is his "understanding" that a private company will undertake the investigation.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

But for their part, Cypriot officials have indicated it will be carried out by Moneyval, an intergovernmental group which falls under the auspices of the Council of Europe, the Strasbourg-based human rights watchdog.

Moneyval already published four positive reports on Cyprus' anti-money-laundering compliance between 1998 and 2011.

After Monday's meeting, the euro finance ministers underlined their "readiness to assist Cyprus in its adjustment effort, including of its banking sector" and to work towards "the earliest possible completion of the loan agreement."

Djisselbloem refused to be drawn on the possible contents of a rescue package.

But he said preparatory work is "well advanced" and he would seek "political endorsement of the programme in the second half of March."

Meanwhile, the government of Nikos Anastasiades, Cyprus' newly elected centre-right President, was sworn into office on 1 March, with a mandate to swiftly resolve a debt deal.

Cyprus requested an EU bailout last June, but negotiations stalled on what to do about the country's bloated banking sector, which currently holds assets worth more than €120 billion - around seven times the size of Cyprus' annual GDP.

The International Monetary Fund, one of the potential bailout lenders, is concerned that a conventional rescue would push the Cypriot debt-to-GDP ratio up to an unsustainable level of between 140 percent and 145 percent, second in size only to Greece.

Cypriot diplomats claim that their banks are clean.

But a leaked report by the German intelligence service last year said they hold billions of euros belonging to Russian investors, some of whom are linked to organised crime.

The former employers of the late Russian anti-corruption activist, Sergei Magnitsky, also claim that tens of millions of euros of Russian mafia money went through Cyprus.

In this context, Germany has insisted on private sector involvement (PSI) - losses by private bank depositors - to bring down the overall cost of the bailout package.

But some EU officials are concerned that losses for depositors would lead to a flight of capital from the island.

The European Commission has previously said PSI was used in Greece on a "unique" basis.

Cypriot banks were already among the hardest hit by the Greek haircut, losing €4.5 billion.

Economic affairs commissioner Olli Rehn last month told reporters that "the commission is not working on any PSI option for Cyprus."

Nicosia has also signalled its opposition to PSI, with Anastasiades saying that this path would "not be accepted."

But Djisselbloem on Monday refused to rule out the possibility.

Rehn the same day confirmed that Ireland would become the first eurozone country to complete its bailout programme, with return to normality due in autumn.

All 27 EU finance ministers will today (5 March) discuss whether to delay the maturity of an estimated €40 billion of Irish debt by 15 years.

Germany and ECB clash over Cyprus

The European Central Bank is at odds with Germany's finance minister over the consequences of not bailing out Cyprus and its wider implications for the eurozone.

Analysis

Final steps for EU's due diligence on supply chains law

Final negotiations on the EU due diligence law begin this week. But will this law make companies embed due diligence requirements in their internal processes or incentive them to outsource their obligations to third parties?

Latest News

  1. EU Commission wants better focus on mental health care
  2. Right of Reply from the Hungarian government
  3. True scale of horror in today's Belarus hard to comprehend
  4. Israeli settlers encircling Jerusalem, EU envoys warn
  5. No clear 'Qatargate effect' — but only half voters aware of EU election
  6. Part of EU middle class 'being squeezed out', MEP warns
  7. Migration commissioner: Greek pushback film 'clear deportation'
  8. In 2024, Europe's voters need to pick a better crop of MEPs

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Stakeholders' Highlights

  1. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  2. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  3. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  4. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  5. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  6. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality

Join EUobserver

Support quality EU news

Join us