Brussels, 25/01/2013 (Agence Europe) - The challenge facing the eurozone is how to combine a substantial easing of the Cypriot debt burden with the need to ensure the country's financial stability, argued Euro Commissioner Olli Rehn on Thursday in an article in the Wall Street Journal.
Several options are being looked at. Rehn said it might be possible to directly recapitalise Cypriot banks with cash from the European Stability Mechanism (ESM), in order to avoid worsening the country's debt. Outgoing Cypriot President Demetris Christofias has called for this because Cypriot banks have suffered losses of €4.5 billion from the Greek bond writedowns (see EUROPE 10765).
The Cyprus Mail says the government has asked Russia to extend until 2021 the 2016 deadline for repayment of a €2.5 billion loan granted in 2011, and Russia is reported to be agreeable to the loan extension. At the Davos Economic Forum on Wednesday, Russian Prime Minister Dmitri Medvedev said Cyprus may get a new Russian loan as long as the eurozone coughs up too, Bloomberg reports.
Other options have been rejected by the Cypriot government. Finance minister Vassos Shiarly has spoken out against a writedown of Cypriot bonds because most of them are owned by the country's banks (see EUROPE 10763). Rehn does not favour this idea either. Christofias categorically rejects the privatisation being demanded by the troika. At less than a month from general elections in the country, the polls favourite and leader of Democratic Assembly, Nicos Anastasiades, is not totally opposed to part privatisation of government bodies, but says it is not one of his priorities.
Rehn said any move that would cause a partial default of Cyprus would be stupid. He called on Nicosia to do more to clamp down on money-laundering and tax evasion. (EL/transl.fl)