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initial agreement with the troika includes a drop in the number of co-ops from 96 to 35

THE government and international lenders were engaged in marathon negotiations last night in a bid to find common ground on a bailout package.

Finance Minister Vassos Shiarly cancelled his trip to Brussels for a Eurogroup meeting today, signalling that talks with the troika will continue throughout the day.

Yesterday’s meeting started shortly after 1pm and was mainly focusing on public finances and structural issues.

It follows a preliminary agreement struck by the troika and the Central Bank on Sunday on measures the banking sector needs to put in place as part of the bailout adjustment programme.

The highlights were the agreement to raise Core Tier 1 capital from 8 per cent to 9 per cent by the end of 2013, instead of 10 per cent as the troika initially proposed.

The two sides also agreed that supervision of co-operative banks would be shifted to the central co-operative bank from the trade and industry ministry.

The Central Bank will also have a role in the supervision.

Co-operatives are also expected to shrink in number from 96 to 35, mainly through mergers.

What was not immediately clear was whether there was an agreement on the definition of non performing loans and the period before a bank could foreclose on a property.

The troika wants loans not serviced within three months to be considered non-performing.

It agrees that two years must elapse before a home is foreclosed but insists on 18 months for all other properties, reports said. The government wants five years for home foreclosures.

Nevertheless, the agreement struck by the Central Bank was acknowledged as progress by government spokesman Stefanos Stefanou who said “an effort will be made for progress to be achieved during today’s (yesterday’s) meeting.”

But that would be easier said than done.

The troika has asked for deeper cuts worth €1.2 billion - their initial demand was for €975 million.

It also wants the proceeds from natural gas to go towards servicing Cyprus’ debt.

Cyprus, according to reports, wants part of the cash to go to the debt - the rest to development and investment for the future.

Lenders want the government to gradually stop contributing to the social insurance fund and write off a €7.2 billion debt to the fund amassed throughout the decades.

Instead of scrapping its contribution, the government has offered contributions from civil servants who currently pay less to social insurance than their private sector counterparts.

Another proposal under discussion is lowering the tax-free threshold from €19,500 to €15,000; the government counter-proposed €18,000.

There are also the matters of wage indexation and privatisation of semi-state organisations (SGOs).

Ruling AKEL leader Andros Kyprianou said some of the matters were very important for his party and they must be cleared before a comprehensive agreement with the troika.

“Some important pending issues are vital for us to be able to agree,” Kyprianou said. He said these concerned natural gas management and “the big question is whether we are prepared to concede our sovereign rights to anyone outside Cyprus.”

Kyprianou said his party would not agree to the sale of SGOs that are important for national security and the economy.

Of the social insurance proposals, Kyprianou said “they will demolish everything we built all these years.”

Kyprianou expressed hope that no one would act as a Trojan horse in the government’s effort to achieve its objectives in the negotiations.  

Main opposition DISY chief Nicos Anastasiades, who is so far tipped to win next year’s presidential elections, said not assuming one’s responsibility and resorting to populism only served to prolong a crisis and not resolve it.

Speaking at the London School of Economics, Anastasiades said honest leaders were needed who do not fear to make decisions.

“They need strategy and a plan that would convince and mobilise the people on a course of quick exit from the crisis,” Anastasiades said.

DIKO said it expected a full briefing soon as it was practically in the dark on the goings on in the negotiations.

Spokesman Fotis Fotiou said it would be a pleasant surprise if the government achieved a deal that would secure the island’s and the workers’ vital interests.

“But the economy is a national cause that must be managed collectively in the most effective and correct way,” Fotiou said.