Brussels, 04/02/2013 (Agence Europe) - On Monday 4 February 2013, Cypriot Finance Minister Vassos Shiarly said that the results of the bank audit carried out by US consultants PIMCO differed widely from the Cypriot government's estimates.
The delay in publishing the PIMCO audit, which will now not happen until the memorandum has been signed, is due to the fact that Cyprus is challenging the methods used by the consultants, explains a European source.
According to the Cypriot media, PIMCO argues that in the event of an adverse scenario, some €10.1 billion would be needed to bail out the country's banks, as opposed to €7 billion for a baseline'scenario. Shiarly is reported to have said that PIMCO recommends that the government works on the basis of the adverse scenario, but the Cypriot government says this would mean borrowing more than strictly necessary.
A Cypriot government spokesman, Stefanos Stefanou, explains that, in a letter to the president of the European Commission, José Manuel Barroso, President Christofias of Cyprus says that the Cypriot government is recommending a bank bailout along the lines of the baseline scenario to avoid affecting debt viability too much (see EUROPE 10765). Stefanou said that, if an adverse scenario were to materialise, then the extra cash could be provided by the European Stability Mechanism (ESM), once the eurozone bank supervisory system under the aegis of the ECB has been set up. Nicosia wants direct recapitalisation of banks by the ESM to operate retroactively.
“Our banks will be recapitalised through a governement loan”, said Shiarly by initially nationalising them and then selling them back to the private sector to reduce the country's loan. He added that Cyprus would then ask for retroactive direct bank recapitalisation from the ESM. In an interview with the Wall Street Journal in January, Euro Commissioner Olli Rehn said that such an ESM direct bailout might be possible for Cyprus (see EUROPE 10772).
In order to ensure sustainability of its debt, Cyprus is asking Russia to extend the maturity of its 2011 €2.5 billion loan. Russian Finance Minister Anton Siluanov said his country was in favour of this rather than providing more cash: “We are more looking into the second option (extension). We are ready for softening (of the terms)... Restructuring of the debt is possible and we'll see about the rates”, reports Reuters. He warned: “Our concessions will not solve the problem of Cyprus”.
Conditions laid down by Germany. Once the aid conditions have been settled, they will need approval from some countries' parliaments, the Bundestag in Germany, for instance. This will be tricky, given reluctance in Germany. In an interview with Der Spiegel, the head of the SPD, Peer Steinbrück, says the following strings will be attached to endorsement of the aid: consolidation of the Cypriot banking sector, a tougher line against money-laundering and tax evasion and Cyprus joining the new financial transactions tax being introduced by 11 other member states. (EL/transl.fl)