Brussels, 03/04/2013 (Agence Europe) - On Wednesday 3 April, the European Commission and the International Monetary Fund (IMF) confirmed the news announced by Cyprus on Tuesday that agreement has been reached at a technical level between Nicosia and representatives of the troika (the European Commission, the European Central Bank and the IMF) on a Memorandum of Understanding (MoU) on the strings attached to a €19 billion aid package (see EUROPE 10818).
The IMF says it will be providing €1 billion and its board will decide on authorisation for the cash in a month's time. The European Commission says the troika reached unanimous agreement that €10 billion of aid should be granted.
The agreed technical document will be submitted to politicians in Cyprus and the eurozone ahead of the informal meeting of Eurogroup in Dublin on Friday 12 April for political endorsement, which will then be submitted for legal validation in the countries that require this. The German finance minister said that Berlin hopes to have the MoU signed and sealed by Tuesday 9 April so that it could be voted upon by the Bundestag in the week beginning 15 April. The Commission thinks the national validation procedures can be finalised by the end of April.
Budget targets. On Tuesday, the Cypriot government announced that it has been given until 2018 to meet its budget targets. IMF director genera Christine Lagarde said on Wednesday: “In addition to the fiscal consolidation already under way-estimated at about 5% of GDP- an additional 2% of GDP in measures will be implemented during the program period, including by raising the corporate income tax rate from 10% to 12½% and the tax rate on interest income from 15% to 30%. An additional 4½% of GDP in measures will be needed over the medium term to achieve a 4% of GDP primary surplus by 2018, which is required to put debt on a firmly downward path.”'
A Cypriot government spokesperson issued a statement to the effect that the government was doing its best but had “inherited a preliminary agreement with many commitments and exhausted every margin of renegotiation. The limitation in the number of civil servants by the end of the programme period, from 5,000 that was initially agreed, to be reduced to 4,500, facilitating in this way the smooth adjustment of the size of the Public Service though retirements.” Privatisation will be pledged in the MoU, as will reform of the civil service to boost tax collection. The country's welfare system will also be revised.
Financial sector. Under the agreement signed with Eurogroup on 25 March (see EUROPE 10814), Cyprus' massive financial industry will be slashed back. The country's second biggest bank, Laiki, will be wound up and toxic assets hived off into a “bad bank,” which will gradually disappear. Savings of up to €100,000 will be transferred to Bank of Cyprus (BoC), which will be recapitalised through a 37.5%,levy on savings, possibly followed by a further levy of 22.5%. Of the remaining 40% of deposits, 10% that had been frozen were released yesterday as part of an easing of capital movement restrictions introduced a week ago (see EUROPE 10816).
Lagarde is pleased that the strategy introduced by the eurozone had avoided adding a further burden on taxpayers and had managed to put Cyprus' public debt on a sustainable trajectory. The eurozone will not lend any more than €10 billion (55% of annual Cypriot GDP) in order to ensure the loan is repayable. Lagarde said that 95% of all savers in Laiki and BoC had savings of less than €100,000. Lagarde and Euro Commissioner Olli Rehn issued a joint statement saying that the measures would make Cypriot banking “stable, sustainable and transparent.” Nicosia has agreed to undergo a further audit of its anti-money-laundering measures.
Growth. Lagarde and Rehn say the Cypriot programme “puts forward comprehensive structural reforms to set the conditions for growth and job creation.” The Cypriot president has unveiled a twelve-pronged growth plan that will remove the current ban on casinos to encourage the flagging tourist industry. The Commission will set up a task force to provide technical assistance to boost growth.
New finance minister. Labour minister Harris Georgiades has taken over from finance minister Michalis Sarris, who resigned on Tuesday (see EUROPE 10808). Georgiades is replaced as labour minister by Zeta Emilianidou, who is the first woman to become a minister in the government of conservative Nicos Anastasiades. Georgiades has called for rapid implementation of the terms of the MoU to ensure the targets and timeline are achieved. (EL/transl.fl)