Cyprus Needs Bailout Agreement Before Election, EU Official Says

The Cypriot government needs to strike a deal with international creditors on a bailout package before the country’s presidential election in February, a European Union official said.

Cypriot authorities feel a “higher degree of urgency” to conclude a deal, the official told reporters in Brussels today on condition of anonymity. It’s “desirable and necessary” for a bailout agreement to be in place before Cypriots elect a new president, the official said.

Talks resumed in Nicosia today with the so-called troika that oversees euro-area bailouts. No consensus has been reached on the size of the bailout within the troika, comprising the European Commission, European Central Bank and International Monetary Fund, a second official said on condition of anonymity because the talks are private.

Cyprus in late June became the fifth euro-area nation to request a financial rescue since a 2010 bailout of Greece. The bailout will encompass banks weakened by their exposure to the Greek economy as well as the public sector. Euro-area finance ministers will discuss the Cypriot request at a Nov. 12 meeting, the EU official said.

The government estimates that the country’s banks, which lost more than 4 billion euros ($5.1 billion) in Greece’s debt restructuring, need as much as 6 billion euros of fresh capital, the second official said. European officials put the banks’ recapitalization needs at as much as 8 billion euros, while the IMF’s estimate is for as much as 10 billion euros, according to the official.

Wage Indexation

The government, shut out of markets since May 2011, may need 4.5 billion euros to refinance debt maturing in the next four years, the second official said.

This estimate doesn’t include a 2.5 billion-euro loan extended by Russia last year, because talks are ongoing to extend that loan’s maturity, the official said.

Finance Minister Vassos Shiarly said on Nov. 2 that Cyprus and the troika remained divided on five points: the volume of recapitalization funds needed for banks, wage indexation, oversight of cooperative banks and privatization. He didn’t name the fifth issue.

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