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'Good progress' made on Cyprus bailout

Government officials say they have reached 'in-principle' agreement with the troika on terms of a bailout deal.
Last Modified: 24 Nov 2012 01:57
Cyprus' President Demetris Christofias says his team and the troika had "reached a convergence" [Reuters]

Cyprus’ potential international creditors say they have made "good progress" in negotiations on a possible bailout for the crisis-hit country.

Despite earlier hopes that a deal was imminent, representatives from the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund said long-distance talks would continue on securing an agreement.

In a statement issued on Friday, the troika said that there had been "productive discussions" with Cyprus on the "policy building blocks of a macroeconomic adjustment programme."

The two sides had "made good progress towards agreement on key policies to strengthen public finances, restore the health of the financial system and strengthen competitiveness."

The statement did not say where progress had been made or what remained to be ironed out.

"Discussions are expected to continue from respective headquarters with a view to making further progress toward a potential programme," it said.

The country's Finance Minister Vassos Shiarly earlier said that the government had reached an "in-principle agreement" with the troika on the terms of the bailout deal.

"Negotiations will follow which can’t be completed at this time because they have to do with the recapitalisation of banks and we’ll have that amount at the beginning of December," Shiarly told reporters.

Shiarly said that once the recapitalisation figure is calculated, a bailout accord could then be finalised.

Once an agreement has been reached, Cyprus will become the fourth member of the 17-strong group of European Union countries that use the euro to receive international help with its debts.

Austerity measures

While most of the bailout is expected to go to recapitalising banks, around 7.5bn euros (US $9.7bn) will be channeled to refinancing the country’s debt and cover fiscal shortfalls over the deal’s four-year timetable.

Cyprus sought international aid in June to save its banking sector from collapse after banks failed to replenish huge losses they suffered on bad Greek debt and loans.

The country has been unable to borrow from international markets for over a year because of its junk credit rating.

Three other euro countries have received international help with their debts - Greece, Ireland and Portugal.

Separately, Spain has also been given a 100bn euro (US $130bn) loan facility to strengthen its banking sector.

Like the previous bailout recipients, Cyprus will have to commit to a range of spending cuts and tax increases.

It is the terms of these austerity measures that the country and its international creditors have been fleshing out.

Union response

Earlier on Friday, Cypriot government spokesman Stefanos Stefanou briefed union leaders on the situation, prompting a sour response from one of them.

"That there are unpleasant and painful measures and provisions in this memorandum is a given. It is something that we as a government had warned of and declared from the beginning," he said.

Stefanou said the left-wing government had negotiated hard to safeguard key workers’ benefits.

Government workers’ union boss Glafcos Hadjipetrou called the public sector pay cuts of more than 15 per cent for some employees "devastating" and "one-sided" but conceded Cyprus had little option but to negotiate a bailout with international lenders.

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