Cyprus will only be eligible for an international bailout if it exhausts all other sources of financial aid, a close party ally of German Chancellor Angela Merkel said.
“There is a clear, agreed sequence of events for aid,” Michael Meister, deputy parliamentary floor leader of Merkel’s Christian Democratic Union party, said in an e-mail from Berlin. “The first issue with any coordinated aid to Cyprus is systemic relevance to the euro zone. Cyprus has to make a case for this before we roll out other questions.”
If the Cypriot government meets the necessary criteria, the so-called troika of the European Central Bank, the International Monetary Fund and the European Commission has to present an agreed draft of a memorandum for Cyprus, Meister said. “IMF participation in the draft is crucially important to us,” he said.
Bailout negotiations have lumbered along for nine months as Cyprus held an election and German officials questioned whether the country was big enough to matter to the fate of the euro. Cyprus makes up barely 0.2 percent of the euro-zone economy.
Debate over the estimated 17.5 billion-euro ($23 billion) package may come to a head at a Brussels summit on March 14, when the new Cypriot president, Nicos Anastasiades, confronts European leaders for the first time. Anastasiades ran with Merkel’s endorsement and has been open to the idea of selling state-owned companies, a key demand by creditors.
The troika’s memorandum must outline which financial and economic measures are required for the Mediterranean island’s public finances to be sustainable in the long run, taking into account the role of Russia as a major investor, Meister said.
“First banks, and with them their shareholders, have to be be ready to rescue the banks,” Meister said. “If that’s not enough, the Cypriot state is next in line. Aid by euro partners comes into play only if Cyprus is demonstrably overwhelmed by the task.”