Cyprus to Hold Runoff Presidential Election as Economy Dominates

Cypriots will return to the ballot box on Feb. 24 to choose a leader who can steer the country away from financial collapse after the frontrunner in yesterday’s presidential election, Nicos Anastasiades, fell short of an outright victory.

Anastasiades, 66, who leads Cyprus’s main opposition Disy party, will face Stavros Malas in the runoff after taking 45.5 percent of the vote compared with 26.9 percent for Malas, who was backed by the communist Akel party of outgoing president Demetris Christofias. Independent candidate George Lillikas was knocked out of the race after placing third with 25 percent.

Cyprus’s incoming president has to revive stalled talks with the European Union on a bailout roughly equaling the size of the island nation’s 18 billion-euro ($24 billion) economy. Cyprus has been negotiating the terms of a rescue for eight months with the so-called troika of the European Commission, European Central Bank and the International Monetary Fund.

“Anastasiades looks likely to win in the second round,” Christian Schulz, senior economist at Berenberg Bank in London, said in an e-mailed response to questions. “A first-round victory would be a sounder endorsement of reform, but the troika will exert enough pressure in any case.”

Shut Out

The country, which became the fifth euro-area member to request international financial aid in June 2012, 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 Greece’s debt restructuring last year.

The euro, at $1.3369, was little changed against the dollar as of 11:30 a.m. in Athens. The Stoxx Europe 600 index slipped 0.3 percent to 286.47.

Anastasiades and Malas agree on the need for Cyprus to sign an international aid deal, saying there is no alternative. They also agree that there is some room for re-negotiation of measures already agreed. One issue dividing the candidates is state-asset sales, which Malas opposes.

Both men say some of the revenue from future sales of recently discovered natural-gas deposits should be used for reducing debt and the remainder for growth initiatives and investing for future generations.

“We all have in common the obligation to give our country a future with prospects at this very critical point in time,” Malas, 45, a former health minister, said after the results were announced. “Together we can face the crisis with growth and not tough policies that go against society.”

Euro Stability

The integration of Cypriot banks into the Greek financial system poses a risk to the stability of the euro, a factor that should be taken into account when weighing whether Cyprus should gain aid, European Central Bank Executive Board member Joerg Asmussen said on Germany’s ARD Television yesterday.

“We need a partner with whom we can negotiate an adjustment program,” Asmussen said. While the ECB is politically neutral, “to secure debt sustainability, we’ll need wide-ranging privatization for example, and that’s something the incumbent president has rejected. Now we’ll see if we can reasonably negotiate such a program by the end of March.”

Initial exit polls suggested that Anastasiades had secured the 50 percent needed to avoid a runoff. His lead slipped in the next hours.

‘New Era’

“This result will transform itself next Sunday into a clear mandate for the formation of a national salvation government,” Anastasiades told cheering supporters last night in Nicosia, the capital. “The road to a new era began today.”

German Chancellor Angela Merkel endorsed Anastasiades on Jan. 11, a move that may help him clinch a bailout amid growing dissatisfaction among euro-area countries over funding rescue programs. Merkel and Anastasiades are both members of the European People’s Party, the European umbrella group for their respective political blocs.

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.

“Securing a bailout from the troika is likely to entail protracted and hard negotiations,” said Wolfango Piccoli, an analyst at Eurasia Group Plc in London. “Cyprus will have to devise and adopt a new model of economic development for the future as a key priority of the bailout is to drastically shrink its large banking sector.”

Cyprus has been divided since 1974, when Turkey invaded the northern third of the island following a coup by supporters of the country’s union with Greece. Yesterday’s presidential ballot was the first since the invasion in which the economy was the main issue rather than reunification of the divided island.

(For more on the debt crisis, see TOP CRIS.)
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