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Finance Minister Vassos Shiarly

CYPRUS is asking its EU partners for a loan, not a gift, Finance Minister Vassos Shiarly said yesterday, saying a write-down of Greek debt, which effectively forced the island to seek a bailout, was a mistake.

"The Greek PSI (debt write-down) was a gift to Greece," Shiarly told Reuters in an interview. "We are not asking for a gift. We are asking for understanding, and a loan on fair terms so we can overcome these financial difficulties we are facing at the moment."

The minister’s comment could be viewed as a response to those claiming that European taxpayer money would be effectively bailing out Russian tax evaders.

A number of lawmakers from Germany's parliament, which would have to approve any bailout, have voiced concerns about a rescue for Cyprus.

The island denied the allegations, stressing that it does more to fight money laundering than other eurozone states.

The write-down, which cost Cypriot banks some €4.5 billion in losses, was a political decision taken by EU leaders, including President Demetris Christofias.

"There are many people in Europe who believe that it was a mistake to go for a PSI. I say it as well," said Shiarly.

The Greek debt write-down "caused a lot of upheaval and one of the problems we are facing - in fact, one of the main reasons we are facing problems is because we accepted the PSI proposal which has added some 25 per cent to our national debt," the minister added.

Cyprus says it has gone the extra mile to introduce reforms, including public sector cutbacks, pension reform and tax hikes. 

"We did what was expected of us, and more," Shiarly said.

The minister did not rule out privatisations if needed to seal a bailout for the island and make a debt even as high as €17.5 billion sustainable.

"There is a provision, a reference, to a possible privatisation if need be," Shiarly said, referring to a draft bailout deal. "That will be considered by us at the time the (bank recapitalisation) figure is known, but not until then."

Much now hinges on an asset quality review expected imminently on Cypriot bank recapitalisation needs.

The company carrying out the review was expected to publish the total amount late yesterday, but ongoing negotiations could mean it will not be known before a Eurogroup meeting on Monday expected to discuss Cyprus.

Cypriot authorities are trying to adjust the worst-case scenario figure downward to avoid the risk of the island’s debt being deemed unsustainable.

“I very much doubt there will be discussion that could lead to a specific decision,” Shiarly told state radio earlier yesterday. “It is unavoidable that another date will be set to discuss matter when figures will be at our disposal.”

Preliminary estimates put the island’s bailout at €17.5 billion – €10 billion will go towards bank recapitalisation – raising concerns that it will difficult to pay off.

But even with an extreme scenario of a €17 billion to €17.5 billion bailout total, "at that figure, the debt can be made sustainable," Shiarly said.

In any case, it appears that any decisions will be deferred until after the February presidential elections.

"It is a fair bet that a final decision will not be made under the present government, but it will be one of the first tasks of the next government, after the elections on February 17th," a senior EU official, involved in the talks said. "In the second half of March there will be a possibility to come to an agreement on a programme," the official said, adding the government was well funded until then.