Brussels, 13/03/2013 (Agence Europe) - It's now official: the 17 members of the Eurogroup will again devote a special meeting arranged for 5.00pm on Friday, just after the Heads of State and Government summit, to Cyprus.
One source explained: “I do not expect a final agreement this Friday”, viewing the objective rather to be one of “sending a clear message… and underlining the determination to reach an agreement” on the aid plan for Cyprus. A second source also ruled out any chance of the Eurozone finance ministers' meeting reaching any conclusive decision and also pointed out that the timetable set out by the Eurozone envisaged on an agreement by the end of March. Nonetheless, significant progress is expected at this meeting. The Eurogroup meeting could prove lengthy and even go on into the small hours of the morning, according to three different sources.
A Cypriot source dismissed reports by certain media that the troika mission (European Commission, ECB, IMF) was coming to an end in Nicosia. The Commission also confirmed that its delegation and those of two other institutions were continuing the work on the ground with the Cypriot authorities, particularly with regard to the modalities on auditing the anti-money laundering efforts. The same Cypriot source indicated that “this audit may begin next week, on Monday or Tuesday”. This assessment is a precondition for granting financial assistance.
In addition to details from the audit, which, in principle, will be carried out by Moneyval, the expert committee from the Council of Europe and private experts, under the supervision of the Cyprian Central Bank, the question of the viability of Cypriot debt is also on the table. The end may, indeed, be in sight on this point. The total amount that Cyprus would borrow from the Eurozone is expected to be “much lower”, according to this Cypriot source, who did not however, provide any figures. Based on information provided by its own sources, Reuters suggested a band of between €10-13 billion, as opposed to the €17 billion initially announced and equivalent to the island's GDP. The IMF has made any participation in a financial aid package conditional on the viability of the country's debt. Germany regards this participation as crucial, as pointed out on Tuesday by an ally of the German chancellor, Angela Merkel, CDU MP Michael Meister. Rumours of an IMF withdrawal from the aid plan were also dismissed by the same Cypriot source. The daily newspaper, Politis, reported that the IMF would not act as a creditor but only as an adviser in this case.
The solution being discussed in Cyprus to contain the country's debt is be to generate new revenues, particularly by way of privatisation and introducing new taxation. A tax on deposits, according to certain media sources, has already been agreed but has so far not been accepted. The Cypriot authorities, however, appear more inclined to abandon their accommodating fiscal policy by setting out corporate tax rates of up to 12.5% instead of the current 10%. Finally, the same Cypriot source added that “the troika is strongly insisting that we adopt the financial transactions tax”. According to this source, Cyprus is against the principle of enhanced cooperation for implementing this tax and will not agree to adopt it unless it was at least introduced in all other Eurozone countries.
Once all the financial bailout modalities have been decided, the aid plan should be approved by certain national parliaments, such as the Bundestag. The German minister for finance, Wolfgang Schaüble, has declared that the Bundestag is expected to give its approval before any decision is made at a European level. According to the CDU MP, Norbert Barthle, this vote is expected to take place in April, according to reports from the Wall Street Journal. Unconcerned by any further delays, one European source thought that there could be a political agreement in principle on the aid plan this March, with legal adoption later on, which would leave time to the national parliaments to come to their decisions. The Cypriot minister for finance, Michalis Sarris, will also be taking the temperature in Moscow next Monday, in an effort to evaluate with the Russian authorities the chances of them making their 2011 bilateral loan with Cyprus more flexible. (EL/transl.fl)