Nicosia, 17/09/2012 (Agence Europe) - Cypriot finance minister Vassos Shiarly said in Nicosia after a meeting of the ECOFIN Council on Saturday 15 September, that Cyprus would not face any cash flow problems in the immediate future. This puts Cyprus in a better position than other countries that have negotiated international aid. For tactical reasons, he refused to say when Cyprus would start to have liquidity problems or how much aid the island would be needing.
On 14 September, the head of Eurogroup, Jean-Claude Juncker, asked the Cypriot government to clarify their intentions in terms of entering negotiations for the possible introduction of a financial aid programme. Shiarly said it would be possible to start negotiating with the eurozone at some point in October.
Cyprus has been unable to roll over its debt on the financial markets at affordable interest rates since May 2011 and in June of this year it made a formal request for a full financial aid package to recapitalise its banks and roll over its debt (see EUROPE 10642). Shiarly said the delays in the negotiations were due to a combination of factors, like the holiday period in Northern Europe, lack of manpower in Cyprus and preparations for the ECOFIN Council. He said that talks would begin on Monday 17 September with Washington, Frankfurt and Brussels and that although the delay was not good, it would simply have to be lived with.
Shiarly said that at the same time talks were under way to get a loan from Russia, but not from China. The Russians have already lent Cyprus money in the past and are prepared to do so again. They had requested information, which Cyprus had supplied and the Russians were examining it, said the finance minister. In 2011, Cyprus was lent €2.5 billion by Russia, which takes a very different approach from the eurozone, said Shiarly, refusing to comment on strings that might or might not be attached to the Russian aid. He said, however, that he expected the Russian loan to Cyprus to be dealt with in the same way as the loans to Ireland from the United Kingdom, Denmark and Sweden when Ireland was bailed out to save its banking industry.
Last week, the Cypriot media commented on a document listing the demands by the troika of lenders (the European Commission, the International Monetary Fund and the European Central Bank) in return for financial aid. Cyprus would have to reduce its budget deficit to 4% in 2012 and 2.5% in 2013, a root-and-branch reform of banks would be required with bank supervision being carried out by the central bank. Cypriot banks would have to increase their core Tier one capital from 8% to 10% by 2014. A privatisation programme would be launched, which would include selling off Cyprus Airways. The troika is reported to be demanding an end to inflation-indexing in the public and private sectors and an extension of the pay freeze in the public sector until 2015. Civil servants' bonuses (the 'thirteenth month') would be scrapped and the civil service slimmed down. For pensioners receiving a pension of more than €1,000 a month, extra payments would be slashed (the Christmas and Easter bonuses, for example). (MB/transl.fl)