Cyprus Seeks More Time to Meet Targets in Talks With Troika
Cyprus government officials are seeking easier bailout terms in talks with representatives of the European Union and International Monetary Fund today, before a meeting of euro-area finance officials later this week.
“Final outstanding issues in talks with the troika primarily relate to the wider financial sector and fiscal policy and adjustment,” Christos Stylianides, the government’s spokesman, said in Nicosia yesterday. The government has been granted a one-year extension to 2017 to secure a primary budget surplus, which excludes interest payments, and it hopes to negotiate an additional year, he said.
Cyprus’s government wants more time to reach targets required in return for 10 billion euros ($12.8 billion) in international funds after agreeing to impose losses on uninsured depositors at the country’s two biggest banks, Bank of Cyprus Pcl and Cyprus Popular Bank Pcl (CPB). Economists including Gabriel Sterne at Exotix Ltd. in London have said the government’s measures to secure the bailout will hurt the nation’s economy.
The Cyprus General Market Index fell 2.5 percent to 99.54 at 2:15 p.m. in Nicosia. The country’s exchange opened for trading today after closing for more than two weeks. Hellenic Bank Pcl (HB) shares dropped 20 percent to 13 euro cents, the biggest decline since at least 1996. Cyprus Popular and Bank of Cyprus are suspended through April 15 on the Cyprus bourse and the Athens Stock Exchange.
“We will likely get the main points of the Cyprus program shortly,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Probably with some key political decisions then to be taken by the next Eurogroup meeting.”
The government can’t provide an estimate on the depth of the economic contraction right now, Stylianides said. The European Commission predicted before the bailout that the economy would shrink 3.5 percent this year.
The latest version of Cyprus’s bailout agreement with the so-called troika of the EU, the European Central Bank and the IMF targets a primary deficit of 2.4 percent of gross domestic product this year and a primary surplus of 4 percent of GDP in 2017, Phileleftheros reported, citing a draft of the document. The draft accord includes 351 million euros, or 2.1 percent of GDP, of expenditure cuts and revenue increases, the newspaper said.
Under the agreement reached for the country’s banks, 40 percent of deposits above 100,000 euros held at Bank of Cyprus will be temporarily frozen to ensure the lender’s liquidity, and Cyprus Popular will be shut, the central bank in Nicosia said March 30. That money, which won’t be used to recapitalize the lender, will receive interest of 10 basis points above current levels and will be released “within a short time frame,” the central bank said.
Cyprus eased capital controls on some transactions today, according to an e-mailed copy of the third amendment to a decree issued on March 29 by the Finance Ministry. The decree, which will apply for two days, allows financial transactions of up to 25,000 euros a day to be carried out without regulatory approval, compared with 5,000 euros previously, and payments of up to 9,000 euros a month to be made by check. The EU said it will continue to monitor the capital controls.
Cyprus’s central bank and troika officials agreed to release 10 percent of uninsured deposits held at Bank of Cyprus, state-run CyBC Radio said today, citing comments from central bank official Yiangos Dimitriou. The central bank will work to convince the troika to release more funds, CyBC said. Spyros Stavrinakis, deputy governor of the Central Bank of Cyprus, said yesterday that the aim is for the full 40 percent of deposits above 100,000 euros held by businesses at Bank of Cyprus to be unfrozen.
Cyprus Popular Bank’s U.K. unit, known as Laiki Bank, agreed to transfer all its deposits to Bank of Cyprus U.K., according to an e-mailed statement from Bank of England Prudential Regulation Authority today.
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