Cypriot political parties will seek agreement on a government-proposed austerity plan by Oct. 15 to clear the way for a deal with international lenders a week later, the leader of the island’s ruling party said.
Cyprus on June 25 became the fifth country in the euro area to seek external aid. No amount was specified for the rescue, which will encompass the public sector as well as banks. Cyprus has also sought a 5 billion-euro ($6.5 billion) loan from Russia. Igor Shuvalov, a first deputy prime minister, said Sept. 8, that Russia may make a decision on the request within a month.
The Cypriot government, which does not have a parliamentary majority, approved two days ago an austerity plan that it discussed today in Nicosia with political parties. The government, which relies on opposition support to pass legislation, proposes savings that total 1.02 billion euros in four years.
The so-called troika of the European Central Bank, the European Commission and the International Monetary Fund, which supervises bailouts in the euro area, is seeking 975 million euros of cuts in three years.
Andros Kyprianou, the leader of the island’s ruling communist party, said “we have to reach an agreement as the time margins are becoming very tight.”
Cyprus’s case could be discussed at the November meeting of euro-area finance ministers “if all these talks also with the troika are concluded by Oct. 22,” Kyprianou said.
A decision on whether communist President Demetris Christofias will secure political support for his austerity plan ahead of negotiations with the troika was postponed until Oct. 15. At that time the Cypriot head of state will meet again with the leaders of the island’s political parties, government spokesman Stefanos Stefanou said.
“There is a road map,” Stefanou told reporters in Nicosia today after Christofias met party leaders.
“We first want to reach an agreement among ourselves, before we negotiate with the troika,” ahead of next month’s meeting of euro-area finance ministers, Stefanou said. He added that the government will provide additional documents on its proposed austerity package to the island’s parties.
The Cypriot government will seek an 11 billion-euro bailout, 62 percent of gross domestic product, to recapitalize its banks and pay its bills, according to three people with direct knowledge of the matter.
The government, which has been shut out of markets since May 2011, had 492.4 million euros in the bank at the end of August and faces 751 million euros of maturing debt through the end of November, according to the Finance Ministry. The government, which has monthly outlays for salaries, subsidies and social programs, faces a larger year-end wage payment in December.
The government plans to cut the public payroll by 247.3 million euros through the end of 2016. The plan also foresees an increase in pension contributions for civil servants and a decrease of 87.8 million euros in pension payments. Spending on welfare benefits will drop by 109.1 million euros.