Brussels, 21/01/2013 (Agence Europe) - At a time when the talks on an aid package for Cyprus have been suspended until after the presidential elections in the country and accusations of money-laundering are weighing on the negotiators, Germany is reported to have set a cat amongst the pigeons. It is tweeted that German far-left party Die Linke is calling on the Bundestag to clarify its position on the danger to financial stability of Cyprus going bankrupt (its economy is just 0.2% of eurozone GDP). The German government has repeatedly suggested that a Cypriot default would not cause major problems.
Credit rating agency Standard and Poor's warned on Wednesday 20 February about the “material and rising” risk of a default in Cyprus, particularly if the troika of lenders (the European Commission, the European Central Bank and the International Monetary Fund) do not provide any financial aid. A full agreement is due in March, according to a timeline set by Eurogroup.
If he wins the election on Sunday, the priority of one of the presidential candidates, Nicos Anastasiades, is to sign an aid deal with Russia. Thus far, Russia has offered to soften the terms of a €2.5 billion loan granted in 2011.
The troika is still examining how to make the Cypriot debt sustainable, but talks at Eurogroup are not expected to advance until a new assessment of Cypriot measures to counter money-laundering have been published. Cyprus does not challenge the idea of a second audit, but says it should not be carried out by a private company. Two separate sources say the most recent Eurogroup talks hinged on precisely that (see EUROPE 10784).
Another bone of contention is whether private investors would have to take a loss. Nicosia rejects this option, but the eurozone has not explicitly ruled it out. The head of the Euro Working group, Thomas Wieser, told Reuters on Thursday that although the details have not been decided yet, it would be possible to make the Cypriot debt sustainable without taking savers' cash. Irish finance minister Michael Noonan said at a Bloomberg event on Friday: “I am worried about the nature of the deal and how depositors will be treated.” (EL/transl.fl)