Brussels, 27/02/2013 (Agence Europe) - Newly appointed Cypriot Finance Minister and former economist at the World Bank Michael Sarris will be meeting with troika experts (European Commission, European Central Bank and International Monetary Fund) in Brussels on Sunday 3 March, this newsletter discovered on Wednesday 27 February from a Cypriot source. The European Commission and ECB were unable to confirm the news. Bilateral meetings with eurozone finance ministers are expected to be held on the fringe of the Eurogroup meeting on Monday 4 March.
Nicosia's financial requirements are covered until May, said Sarris' predecessor, and the country is planning to finalise an aid deal in March. To make this possible, several obstacles will have to be removed, like whether savers will have to accept losses to reduce the Cypriot debt burden. Nicosia is resolutely opposed to this because it would run counter to its national constitution, but “powerful voices” in Europe are reported to be demanding it. On this, the ECB has made positive noises. Benoît Cœuré of the ECB's Executive Board commented: “There needs to be an appropriate burden-sharing in the programme because we need to achieve debt sustainability. But no bail-in across the board. One proposal for having depositors foot the bill would involve freezing any amounts above €100,000 with the total held in an escrow account and used either to shore up the capital of the banks or as collateral for loans. I wouldn't include a general bail-in of depositors as part of the solution given the risks that it would pose for financial stability”.
Nicosia has another idea for ensuring it will be able to repay the loans it is to be granted, which might exceed the country's GDP, which is for the loans to take account of bank bailout needs, estimated by Pimco consultants at €5.98 billion based on a baseline scenario. In a worse scenario of bank recapitalisation needs rising to €8.66 billion, Nicosia would ask to be allowed to meet the gap through direct bank bailouts from the European Stability Mechanism (ESM). The Commission does not want to commit itself one way or the other for the moment because the details of how ESM bailouts would work has yet to be decided and the new bank supervision mechanism has not yet been set up at the ECB and is unlikely to come on stream until March 2014.
Nicosia and its European partners clash over the demand for a private consultant to carry out an audit of the implementation by Cyprus of its anti-money laundering legislation, which is being set as a precondition for aid. The Eurogroup says a private sector company must make the assessment because of the need for speedy action, but the Cypriot government see a danger of conflict of interests and now wants the assessment to be made by a mixed group - institutional and private sector experts.
Rating agencies still divided over Cyprus. US credit rating agency Fitch sees the election of Nicos Anastasiades as the new Cypriot president as an opportunity for reaching agreement on an aid package, but Standard and Poor's says that the outcome of the talks will depend on the eurozone's policy choices. Fitch says that, to make the debt viable, the Cypriot aid programme will have to include privatisation, but S&P says that the introduction of a tax savings or on financial transactions could be used instead. Fitch says the country will not default on its loans, whereas S&P warns of growing risks of default. (EL/transl.fl)