THE EUROGROUP yesterday pledged to agree a bailout for Cyprus by the end of March, following agreement last night on an “independent evaluation” of the island’s anti money-laundering framework.
However, the details of how the rescue will be financed and whether a haircut on bank deposits will be imposed have yet to be sorted out, according to Reuters. Nor were any details immediately available on what form the money laundering audit will take.
Speaking after the meeting of eurozone finance ministers in Brussels, Eurogroup chairman Jeroen Dijsselbloem told a news conference that EU ministers were ready to help Cyprus overhaul its economy, and especially its oversized banking sector.
“We agreed to target a political endorsement of the programme towards the second half of March," Dijsselbloem said, referring to the rescue package, which is set to total up to €17 billion.
Removing one of the stumbling blocks for an agreement, Dijsselbloem said that the new Cypriot authorities had agreed to an independent review of how Cypriot banks are implementing anti money-laundering laws. That is likely to appease Germany, which has raised concerns about money-laundering on the island. No details were given last night on what kind of “independent evaluation” would be undertaken, leaving it unclear as to whether agreement had been reached on private auditors working alone or in collaboration with institutions like the Council of Europe’s Moneyval.
According to the Cyprus News Agency, when asked whether it would be Moneyval operating in Cyprus under the auspices of the Cyprus Central Bank, Dijsselbloem said he had been at another meeting when that specific decision was taken, but he added that his understanding was the audit would be undertaken by a private company since that was the key sticking point.
Yesterday was the first Eurogroup meeting for President Nicos Anastasiades’ new government, who was represented by finance minister Michalis Sarris.
In the build-up to the key meeting, Sarris spoke with a number of foreign news outlets, laying out his negotiating strategy for the bailout.
According to the Wall Street Journal, Sarris said Cyprus was willing to meet the troika halfway on privatisations, downsizing its banking sector and auditing its anti money-laundering framework but in return wanted a clear commitment that there would be no ‘bail-in’ of bank depositors. This option of forcing losses on large deposit holders in Cypriot banks and senior bondholders has been doing the rounds recently, mostly in the German press.
Figures released last week showed a little over 2 percent of Cyprus’ total deposits was withdrawn in January, although officials say there has since been a return of capital.
Sarris warned that creditor haircuts, which he has described as a “foolish” idea, would “strike a fundamental blow” to Cyprus’ services economy, making repayment of any loan harder while setting a damaging precedent.
The Financial Times (FT) yesterday reported that Cyprus needs around €16.7 bn to meet the state’s financing needs and recapitalise its banks, which would increase the country’s debt to 145 per cent of national income by 2014.
The draft memorandum agreed between the previous government and the troika includes a provision demanding a look at privatisations should Cyprus’ debt prove unsustainable.
Sarris told the FT ahead of yesterday’s Eurogroup meeting that he wants to push for more flexible terms on privatisations to avoid pressure for a quick sale at lower prices that would increase unemployment.
Instead of rushing to privatise within a fixed number of years, the Cypriot minister argued that privatisations could be implemented “when the conditions are right”.
Regarding German pressure to send in private auditors to check Cypriot banks’ implementation of anti money-laundering laws, Sarris said he would counter-propose a compromise deal where the audit would be led by Moneyval, the Council of Europe’s anti money-laundering agency, but include “mutually agreed experts” from outside.
“It responds to those who want to take a more careful look but at the same time not doing it in a way that could cause chaos,” Sarris told the FT.
However, it appears that the eurozone ministers yesterday examined a variety of options to finance the bailout and ensure that it is “sustainable” - that Cyprus can repay what it borrows - without reaching any conclusion other than a commitment to reach a deal by the end of March.
When asked if bank depositors were safe, Dijsselbloem, who chairs the meetings of the finance ministers, avoided a direct answer.
He said the details of the bailout would have to be worked out together by the International Monetary Fund, the European Central Bank and the European Commission (troika).
“All the ... elements will have to be decided as soon as the institutions come back with a solution which is cooperative in reaching a feasible and sustainable solution to Cyprus, so all the questions of the elements will then be answered,” he said.
Meanwhile, in a released statement, the eurozone’s finance ministers said: “With the new government now in place in Cyprus, the Eurogroup is confident that a swift conclusion of the negotiations towards a Memorandum of Understanding can be reached.”
This in itself ends a dispute over whether Cyprus is important enough for the eurozone to come to its rescue - a debate started by Germany, which had said the “systemic relevance” of Cyprus was unproven.
The Eurogroup described its first exchanges with the new Cypriot government in the statement as “useful” and welcomed Anastasiades’ commitment “to closely cooperate with Cyprus’ European partners towards the earliest possible completion of the loan agreement”.
It also noted that it “has been informed that…the new government has agreed on an independent evaluation of the implementation of the anti money-laundering framework in Cypriot financial institutions”.
Regarding privatisations, there was no word from Brussels last night as to whether Sarris was able to convince his counterparts on a more “flexible” approach.
The troika are sending a mission of experts to Cyprus today for a technical analysis of the country's financing needs and to get a better understanding of the new Cypriot government, ECB board member Joerg Asmussen said.
According to state broadcaster CyBC, other troika representatives were already on the island yesterday holding meetings with the top management of seven semi-government organisations (SGOs): telecoms company CyTA, the Electricity Authority (EAC), the Cyprus Ports Authority, State Fairs Authority, CyBC, the Cyprus Stock Exchange, and the Land Development Corporation.
The troika officials will continue meetings with SGOs today.
Dutch Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem, left, with International Monetary Fund Managing Director Christine Lagarde and Belgium's Finance Minister Steven Vanackere