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Cyprus close to deal on becoming fourth bailed-out Eurozone country

The finance minister of Cyprus says the last few difference on a Troika bailout are “bridgeable”.

Cypriot finance minister Vassos Shiarly says his government is close to finalising a bailout deal with the Troika.
Cypriot finance minister Vassos Shiarly says his government is close to finalising a bailout deal with the Troika.
Image: Philippos Christou/AP

CYPRUS IS CLOSE to striking a deal over the terms of a bailout with a Troika of lenders to save its Greece-exposed economy, its finance minister Vassos Shiarly has said.

“We are very close [to agreeing bailout conditions]. The differences which remain with the Troika we consider to be bridgeable,” Shiarly was quoted as saying by Kathimerini newspaper.

The minister also expressed confidence that Nicosia would be able to sign a memorandum for EU financial aid before the Eurogroup of finance ministers on November 12.

“Even on the so-called open issues I’m optimistic agreement is possible,” said Shiarly.

Cyprus has drawn up its own a package of countermeasures of milder cuts to the Troika’s harsher terms for financial aid.

Opposition parties back the government’s stance against abolishing the index-linked cost of living allowance, privatising utilities and scrapping a ’13th month’ of public sector salaries, but want to see less tax hikes and more spending cuts.

Government wants more time than Troika will give

A document leaked to the media shows the government apparently proposing to raise revenue through more taxation and fewer cutbacks over a longer period than proposed by the Troika.

It hopes to cut the debt gap by slightly more than €1 billion by the end of 2016 rather than the €1 billion in mostly public finance cuts the Troika seeks by 2015.

The Troika’s proposals are comprised of 80 per cent spending cuts, and 20 per cent via increased taxes.

The government’s proposed ratio is 60:40 including a two per cent hike in VAT to 19 per cent by 2014, a 5c rise in excise duty on petrol and €150 million slashed off state benefits.

Final negotiations with international lenders have stalled while Brussels discusses these proposals with Nicosia.

Without giving a firm date, Shiarly said a Troika delegation would “arrive soon” on the island to sign a memorandum. They are expected to arrive next week.

“It will be a high level delegation to close the final pending political issues which remain.”

Troika representatives have visited Cyprus twice since June, when it called for help after both the Bank of Cyprus and Cyprus Popular Bank said they could not raise funds to meet recapitalisation requirements.

Ratings agency Moody’s said in its latest junk downgrade of Cyprus’s sovereign status the government would need in excess of €8 billion to recapitalise the banks.

It said such sums could see the public debt ratio spiral to 140 per cent of GDP, making any economic recovery unlikely before 2015.

- © AFP, 2012

June: Cyprus asks for bailout from the eurozone

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