29th Mar 2023

Cyprus hopes for EU bailout deal 'this weekend'

Eurozone leaders breaking off late Thursday night (14 March) after a first summit day in Brussels said swift negotiations are under way to close a deal on the Cyprus bailout.

"I cannot imagine we can let the week-end pass by without solving the Cyprus problem," Luxembourg Prime Minister Jean-Claude Juncker said on his way out of the summit.

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He added that a meeting of eurozone finance ministers scheduled for Friday afternoon in Brussels should "reach a final form, rather than come closer to a solution."

Austrian Chancellor Werner Faymann also said on his way out of the summit: "I think it is possible for finance ministers to reach an agreement."

He noted that the new government in Cyprus is willing to meet all the demands of foreign creditors.

"The eurozone should support all countries who meet the demands," Faymann said.

But German Chancellor Angela Merkel said "quality" must come before speed when agreeing on a rescue package for Cyprus.

Merkel had insisted for the Cyprus bailout discussion should not take place among leaders on Thursday night as long as the troika has not finalised its report on how much money the country needs and what measures its banks must take in return.

"Things last as long as they need to, in order to be solved in a qualitatively reasonable manner. What we need is a sustainable solution," she told reporters on Thursday night.

So-called troika negotiators from the European Commission, the European Central Bank and the International Monetary Fund stayed up all night in Brussels to put together the nuts and bolts of a deal for finance ministers to discuss later on.

For his part, Eurogroup chief Jeroen Dijsselbloem, who called the extraordinary meeting of eurozone ministers, has indicated that the overall amount will be smaller than initially thought - around €10 billion instead of the previously floated €17 billion.

"The programme's size has to be limited," Dijsselbloem told the Dutch parliament on Wednesday.

At stake is the overall "debt sustainability" of the bailout programme - with a gross domestic product of just €19 billion a year, it is feared that country would struggle to carry a new debt that is almost the same size.

The troika is also looking at ways to involve the Cypriot banking sector itself - which is "oversized," as one German official put it - in the bailout programme.

But Juncker on Thursday rejected the idea that Cypriot banks should take losses just as Greek ones did last year when the EU agreed a second bailout for Greece.

"We need to look for a solution that is not a blunt haircut," he said. The prospect of a haircut is already causing people to take their money out of Cyprus.

Cyprus' banks - suspected of being involved in money laundering for Russian and Ukrainian oligarchs - are not popular among German politicians.

The Social-Democrat opposition in Germany has threatened to veto the rescue deal, which needs the approval of the German parliament to go ahead.

Independent auditors are due to produce a report on money laundering in Cyprus in the next few weeks.

But doubts remain whether Moneyval, an intergovernmental body based in Strasbourg which is to play a leading role in the audit, will do a proper job - Moneyval in recent years already gave Cypurs a clean bill of health in four separate reports on the subject.

Meanwhile, the Cypriot finance minister, Michael Sarris, is also expected to travel to Moscow on Monday after the Eurogroup debate.

Russia lent Cyprus €2.5 billion in 2011 and an extension of the deadline for repaying the loan might bring down the size of the EU bailout.

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