Brussels, 08/03/2013 (Agence Europe) - After agreeing to undergo a new audit of its fight against money-laundering, Cyprus is now demanding concessions of its own from its future money-lenders. The new Cypriot government says it is time to put an end to the rumours that private savers may have to contribute to the country's aid programme. The rumours have led to nearly €1.7 billion being withdrawn from savings accounts in Cyprus in January. On Monday 4 February, the head of Eurogroup, Jeroen Dijsselbloem, refused to explicitly rule out savers having to cough up because the exact details of the Cypriot bailout are still under discussion (see EUROPE 10799).
After a meeting on Thursday with representatives of the troika (the European Commission, the European Central Bank and the International Monetary Fund), Cypriot finance minister Michalis Sarris said that the issue had been raised by the Cypriot prime minister, Nicos Anastasiades, who categorically rejects the idea of savers having to contribute. The IMF, backed by Germany, Finland and the Netherlands, is reported to be pushing for savers to be forced to make a financial contribution.
Anastasiades' government also refuses to include new austerity measures in the draft agreement, like further cuts in civil servant pay or cuts in pensions. The Cypriot government is reported to have rejected a request by the troika that it change its tax policy towards companies, one of the most accommodating in Europe. The troika is said to be demanding that company tax be increased from 10% to 12.5% (at 10%, it is currently the lowest in Europe). Joining the countries that are using “enhanced cooperation” to introduce a financial transactions tax (FTT) is being strongly recommended by the eurozone and the IMF, but the Cypriot government is refusing to budge - it says that everything that's needed to cut spending and increase revenue has already been included in the draft agreement negotiated with the previous government on 21 November 2012.
Privatisation. The scale and speed of privatisation plans is a subject of debate between the parties. Unlike the previous government, the current government is not opposed to privatisation as a matter of principle, but wants to wait and see whether it is needed before using this type of measure to make the debt sustainable.
The Cypriot government has been looking into ways of dealing with the country's debt, like slashing the size of the banking sector (in order to bail out its banks, Cyprus needs to borrow €10 billion). Nicosia says its banks are too active abroad and wants some branches to be closed. The country is also counting on gas windfall revenue in the future.
On Thursday, the president of the ECB, Mario Draghi, said that he felt the Cypriot situation to be “endemic” and the eurozone had to find a solution to make the country's debt sustainable and ensure its financial stability (see EUROPE 10801).
While recognition of the systemic nature of the Cypriot situation seems to pave the way for the ECB to buy the country's bonds on the secondary market (better known as the OMT programme), a well-placed source said on Friday that one of the criteria to be met by Cyprus for it to be eligible for the OMT programme was access to the financial markets, and Cyprus has been forced to turn to its European partners for aid precisely because it is unable to raise cash from the money markets. (EL/transl.fl)