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Cypriots Hand Anastasiades Mandate to Secure Financial Rescue

Cyprus' President Nicos Anastasiades
Newly elected Cyprus' President Nicos Anastasiades smiles as he is greeted by supporters as he arrives for a press conference in Nicosia. Photographer: Patrick Baz/AFP via Getty Images

Nicos Anastasiades defeated opponent Stavros Malas by the biggest margin in 30 years to become Cyprus’s seventh president and begin the process of steering the country away from economic ruin.

Anastasiades, 66, head of the main opposition Democratic Rally party, won 57.5 percent of the vote, compared with 42.5 percent for Malas, who was backed by the communist Akel party of outgoing president Demetris Christofias. The two faced off after a first-round vote on Feb. 17 failed to deliver an outright victory to Anastasiades.

The new president, who is backed by German Chancellor Angela Merkel, is charged with reviving stalled talks with European partners on aid needed to save the island from a financial meltdown. Cyprus needs aid that could equal the size of its near 18 billion-euro ($24 billion) economy to rescue its banks and finance the government over the next three years.

“The biggest challenge right now is to get the economy on a path to stabilization and growth,” Anastasiades said in statements televised live on state-run CYBC TV last night. “We will speak and work with our European partners to complete the loan agreement with them as quickly as possible.”

Shut Out

Cyprus, a European Union member since 2004, has been negotiating for eight months with the European Commission, European Central Bank and International Monetary Fund over conditions for the rescue. The country became the fifth euro-area member to request international aid in June.

It has been shut out of debt markets for almost two years, with lenders including Bank of Cyprus Plc and Cyprus Popular Bank Plc losing 4.5 billion euros in last year’s restructuring of Greek sovereign debt. The country faces a funding cliff on June 3, with bonds worth 1.4 billion euros due to mature.

“Anastasiades is soon likely to realise that winning the presidential election was the easiest part of the job given the challenges that lie ahead,” said Wolfango Piccoli, an analyst at Eurasia Group Plc in London. These are “concluding the bailout deal and securing the needed parliamentary approval by early May at the very latest, and then putting together and implementing a new model of economic development for the island.”

After Greece, the Cypriot rescue is set to be the biggest in the 17-nation euro area as a proportion of gross domestic product. As much as 10 billion euros may be required to rescue the banks and 7.5 billion euros will be needed by the government, Finance Minister Vassos Shiarly said on Nov. 22.

Russian Capital

Talks have dragged in part over insistence by Merkel’s government, in charge of Europe’s biggest economy and the largest contributor to euro-area bailouts, that Russia contribute to any bailout. German officials argue that Russian capital, legal or illegal, dominates the bloated Cypriot banking system, drawn by the island’s low-tax rate and a double-tax avoidance treaty.

The risk of a Cypriot sovereign default is “material and rising,” Standard & Poor’s said on Feb. 20. There is “at least a one-in-three chance” that it will cut Cyprus’s CCC+ credit rating this year, S&P said.

Anastasiades’s victory is unlikely to trigger immediate resolution of the problem as “the main political challenge to a deal lies elsewhere,” Alexander White, a European political analyst at JPMorgan Chase & Co. in London, said in a Feb. 19 note. “A deal in March or April is certainly possible, but given the complexity of the issue in Germany, and elsewhere, this may be optimistic.”

Reaching agreement with Russia on contributing to a rescue will be an “immediate priority,” Anastasiades said Feb. 21 in answer to e-mailed questions. He repeated last night that his goal was to “reinforce and strengthen” those ties.

Anastasiades won by the widest margin since 1983, according to official data on the Cyprus government’s website. This presidential election was the first since the island was divided in 1974 in which the economy was the main issue rather than reunification.

Cyprus was divided when Turkey invaded the northern third of the island following a coup by supporters of the country’s union with Greece.

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