Brussels, 01/07/2013 (Agence Europe) - On Monday 1 July, the Cypriot government exchanged debt owned by national investors and due to mature between now and 2016 with new coupons with a maturity of between five and ten years.
The deal covers €1 billion of bonds. The yield remains unchanged, only the maturity has changed. It will mean that Cyprus will not have to pay back some €700 million of bonds this year.
Announced last week, this debt exchange is a part of the Memorandum of Understanding between Cyprus and its lenders, and had led to the island's short- and long-term sovereign debt being downgraded to “selective default” by the Standard and Poor's credit rating agency, and to “limited default” for the bonds in question by Fitch. An EU source says the downgrades were expected and rating agencies usually raise the rates again when the exchange process is over. Last week, the ECB announced that it would no longer accept Cypriot debt as a guarantee on the loans it grants to eurozone banks, following the downgrading of the island's credit rating, but said that it would revise the decision once the debt exchange was over. On Wednesday, the president of the ECB, Mario Draghi, will be meeting a delegation from Cyprus headed by the island's president, Nicos Anastasiades.
Doubts about programme structure. The central bank of Cyprus recently published an interim report on the future of the country's banks, compiled by an independent committee it appointed in 2012. The committee says that the aid programme is exceptionally severe compared with earlier programmes, whose “restructuring measures contain the danger that insufficient thought has been given to Cyprus' longer term recovery and the future of the banks”. The absorption by Bank of Cyprus (BoC) of the solvent assets of the Laiki bank, which has now folded, will create a mammoth bank that will control half of the Cypriot market, explains the report. Its authors are concerned about the situation, because it “will affect banking confidence in the eurozone more widely,” as will the raiding of savings of over €100,000, along with the unprecedented restrictions on the movement of capital. If the planned re-financing of the island were to prove insufficient, that would only increase distrust, making it more difficult to remove the restrictions. The report says the way the raiding on savers' cash has been borne is not fair, and there is a paucity of measures for promoting growth. (EL/transl.fl)