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Cyprus bailout could come soon
CYPRUS could apply for an EU bailout by the end of the month, Finance Minister Vassos Shiarly signalled yesterday, and if it does it would not be just for the recapitalisation of the Popular Bank, which is exposed to Greek debt.
"The matter is urgent. We know the recapitalisation of the banks must be completed by June 30, and there are a few days left," Shiarly told reporters after a House Finance Committee meeting.
The minister said that if Cyprus did apply it could also be with a view to cover future financing needs.
"When one applies to the support mechanism you take into account all the facts, including needs which may arise in coming periods. Consequently it would be a comprehensive request covering not only present circumstances and the recapitalisation of the banks but also future needs," the minister said.
High yields on its bonds have effectively shut Cyprus out of international financial markets for the past year.
The island could need the equivalent of 10 per cent of its gross domestic product just to prop up Popular, which is looking for an investor willing to fill a €1.8 billion regulatory shortfall, or the government must come to its aid.
Cyprus has so far covered its financing needs for 2012 through a €2.5 billion loan from Russia but an additional €2.2 billion in debt matures in 2013.
Shiarly could not say how much a potential aid request would total.
Timings wise, and because bailouts typically occur over weekends to minimise disruption to markets, Cyprus would in theory have a slot to make any application next weekend, when the focus will be on the Greek election on June 17, or the weekend of June 23-24.
But wary of Greece’s experience and worried that pressure could be applied to change its tax regime which is one of the lowest in the EU, have made Cyprus reluctant.
As potential leverage, it is negotiating separately with a third country in the hope that it could secure better bailout terms from its EU partners.
That country has not been named, but it is widely thought to be China.
Asked about the progress in discussions, Shiarly told lawmakers earlier that he had anticipated some conclusion to discussions at the end of May, but that he now expected news "very soon.”
He did however express optimism that Cyprus could secure good conditions if it did apply eventually.
“But you realise it is something that needs to be discussed, negotiated and arrive somewhere. It is difficult at this stage for one to add anything else,” he said.
Shiarly said Cyprus’ indicators were not as bad as presented by some – the deficit target for 2012 is 2.5 per cent and public debt around 71 per cent, which is below the EU average.
“I am optimistic that with Cyprus’ figures we can secure a good arrangement,” Shiarly said.
However, to meet the deficit target, the government must put measures in place to tackle a one percentage point deviation.
Shiarly said he expected discussion over the form of the measures to conclude soon upon which they will be announced.
The minister told MPs earlier that the measures would aim at cutting operating costs, targeting social transfers, improvement of competitiveness “and some additional measures, which could include some taxes.”
So far, other government officials including President Demetris Christofias, had said that if Cyprus applied for bailout, it would be to recapitalise the Popular Bank.