Brussels, 08/11/2012 (Agence Europe) - On Thursday 8 November, the European Commission confirmed the announcement by the Cypriot government the day before that the negotiations with the troika of lenders (the European Commission, the European Central Bank and the International Monetary Fund) on a financial aid programme for Cyprus will resume on Friday.
The French newspaper Les Echos says that Cyprus is planning to cut spending by 60%, rather than the 80% recommended by the troika. Cyprus says it can achieve the target of cutting the public deficit by €1 billion by the end of 2016, but the Memorandum of Understanding penned by the troika gives 2015 as the deadline for this.
There is little likelihood of reaching agreement in principle at the Eurogroup meeting on 12 November on a financial bailout for Cyprus. German newspaper Der Spiegel says agreement is not likely until next year based on a report by German intelligence services that Cyprus is turning a blind eye to the laundering of money by Russian mafia on the island. The allegations have been strenuously denied by the Cypriot authorities.
According to the European Commission's autumn forecasts, Cyprus is one of the few EU countries that will still be in recession in 2014 (see EUROPE 10725). Its GDP is expected to contract by 2.3% this year, 1.7% in 2013 and 0.7% in 2014. The Commission comments: “Failure to raise the required capital and to put policies back on a sustainable path could dramatically worsen the outlook and reinforce the negative loop of lower liquidity, higher indebtedness, worsening labour market conditions, and lower productivity. (…) Furthermore, any worsening of the economic situation in Greece remains a significant downside risk for Cyprus as well as any further needs of recapitalisation for the domestic banks.” (EL/transl.fl)