Cyprus' president said Friday he will ask the European Union to provide more help for the crisis-hit country, which has to pay for most of its expected 23 billion euro ($30 billion) bailout.
Cyprus’ president said Friday he will ask the European Union to provide more help for the crisis-hit country, which has to pay for most of its expected 23 billion euro ($30 billion) bailout.
President Nicos Anastasiades said he will send letters to European Commission President Jose Manuel Barroso and EU Council chief Herman Van Rompuy calling for “a change of EU policy” toward Cyprus by offering additional assistance.
News of the letters sparked speculation among investors that the country was pushing for more money from its international creditors – the European Commission, European Central Bank and the International Monetary Fund – under its bailout package.
However, government spokesman Christos Stylianides said this request for help – which will also be directed to the European Parliament and to the Irish EU presidency – would not seek more bailout cash. Instead, Cyprus would ask to tap more of the EU’s structural and social cohesion funds, which are used to support economic development and invest in infrastructure.
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Stylianides said Cyprus would also ask for a bigger EU contribution to jointly funded infrastructure projects.
“The government will move on all levels and hopes to secure significant, additional sources of funding for growth and social cohesion,” he said.
Last month, Cyprus and its international creditors agreed a 17 billion euro bailout package for the country so it could rescue its banking sector and prop up its economy. That figure was based on an estimate that independent auditors had come up with last November. The euro countries and IMF would contribute 10 billion euros, with Cyprus making up the rest – mostly by overhauling its banks.
However, since then, the bailout package has increased to 23 billion euros, with Cyprus’s share burgeoning to 13 billion euros, according to a draft document by its creditors. The 6 billion euro increase is because of a worsened economic outlook and the ailing banks’ higher than expected financing needs.
Stylianides blamed the previous, left-wing administration for dragging its feet and not swiftly finalizing a bailout deal – something that resulted in the economy and the banks being drained of money.
But he said the extra 6 billion euros that Cyprus must fork out could be covered by the measures already agreed to in the bailout deal.
The bailout deal called for imposing losses of between 37.5 percent and 60 percent on deposits over 100,000 euros in the Bank of Cyprus, the largest lender. Depositors in Laiki, the second-largest bank, face losses of up to 80 percent. Cyprus’ increased financing needs suggest the losses may be on the higher end of those ranges.
The government spokesman said 10.6 billion euros will come from the restructuring of the banks. The rest of the money will come from taxes, a rollover of public debt held by domestic investors, privatizations, possibly a sale of some of the central bank’s gold reserves and better terms on a 2.5 billion euro loan Russia had granted in 2011.
As part of its bank restructuring, and to prevent a run on the country’s banks, Cypriot authorities have imposed a series of capital controls – the first that any country has applied in the eurozone’s 14-year history.
Late Thursday night, the country’s central bank lifted all restrictions on payments up to 300,000 euros to re-energize cash-starved domestic businesses which had difficulty paying suppliers and employees. Moreover, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros, while the 1,000 euro limit on travelers taking cash with them on trips abroad has been doubled.
However, a daily cash withdrawal limit of 300 euros remains in place, as well as a ban on cashing checks. Bank-to- bank transfers are limited to 2,000 euros per person per month and 10,000 euros for businesses. The decree also introduced a new restriction on opening new accounts in banks where customers had never done business before.
Meanwhile, the Cyprus Central Bank announced Friday that Deloitte Financial Advisory would carry out an independent audit of the country’s banks to see if they are doing enough to combat money laundering. The Council of Europe’s anti-money laundering body Moneyval has already carried out a parallel audit.
Cypriot authorities agreed to the audit requested by its creditors amid allegations – mainly from Germany – that the country’s banks were being used to launder dirty Russian money. Cypriot authorities strongly denied the allegations.