European Central Bank council member Panicos Demetriades said it was important for Cypriots to accept the need to take prompt fiscal and economic measures as talks continue on the country’s rescue package.
“It’s important for us to be realistic,” said Demetriades, who is also governor of the Central Bank of Cyprus, in excerpts of an interview with Nicosia-based state broadcaster CyBC. “We try to project this to the troika. We need the uncertainty that we have over us to end.”
Cyprus on June 25 became the fifth of the euro area’s 17 member states to seek external aid. Euro-area finance ministers agreed to begin talks on a bailout for the eastern Mediterranean island two days later. No amount was specified for the rescue, which will encompass the public sector as well as banks. Cyprus also sought assistance from the International Monetary Fund and Russia.
Cyprus’s government is continuing talks with officials from the European Commission, International Monetary Fund and European Central Bank over the next weeks on a bailout which will include fiscal adjustment and growth measures. Demetriades said he hoped an agreement with the so-called troika of creditors would be signed by the end of September. “We want to close this matter”, he said.
Standard & Poors cut its rating on Cyprus to BB from BB+ last week, saying that the bailout, which it predicts at 11 billion euros ($13.5 billion), will increase the country’s debt to more than 105 percent of gross domestic product in 2013. Debt amounted to 72.7 percent of GDP at the end of the first quarter, according to government data.
Cyprus’s banks sustained losses on their Greek government bond holdings in Greece’s debt swap, the biggest sovereign restructuring in history. The island’s government had to rescue the second-largest lender, Cyprus Popular Bank Pcl, in May by underwriting a 1.8 billion-euro capital increase. On June 27, Bank of Cyprus Pcl requested 500 million euros in temporary aid to meet regulatory requirements. Demetriades said the exact figure for how much funding Cypriot banks will need won’t be known until an audit is completed by the end of October.
The central bank plans to conduct an independent study on the nation’s banks to detect any irregularities, Demetriades also said.