Brussels: Eurozone finance ministers said that a long-delayed bailout for Cyprus could be fixed by the end of the month after Nicosia agreed to submit its financial sector to independent scrutiny over concerns of large-scale money-laundering.
Long resisted by the previous, Communist-led Cypriot government, the first face-to-face talks between the other 16 ministers from the euro currency area and their new Cyprus counterpart, Michael Sarris, resulted in a deal to break an eight-month deadlock.
The accord represented an “important step forward,” according to European Union Economic Affairs and Euro Commissioner Olli Rehn, and “the most convincing means of effectively addressing persistent concerns” about the Cypriot finance sector.
The anticipated 17-billion-euro ($22.3 billion) rescue package for Cyprus is worth roughly the same amount as a year’s output for the Cypriot economy.
Cyprus was responding to a demand stressed by Germany in particular, and with that issue resolved, the eurozone “agreed to target political endorsement of the programme around the second half of March.”
Eurogroup chairman and Dutch Finance Minister Jeroen Dijsselbloem hailed the outcome after barely four hours of talks in Brussels, although he was light on details — especially on how a private company brought in from the outside could conclude a detailed probe into dirty cash within just weeks.
“The new Cyprus government has only very recently been installed,” he underlined.
Expressing the hope that the EU-IMF Troika “can travel soon to Nicosia and start the talks,” he maintained: “March has only just begun, so there is time yet.”
Later on Monday evening, diplomatic sources confirmed to AFP that talks were continuing between IMF managing director Christine Lagarde, European Central Bank head Mario Draghi and Dijsselbloem, joined by senior ministers from major eurozone states, on how to accelerate the work.
Sarris was named by incoming Cyprus President Nicos Anastasiades, who has vowed to save the near-bankrupt Mediterranean island from financial meltdown with the “earliest possible” bailout.
Eurozone ministers had put rescue negotiations on hold until after last month’s election.
As well as the money-laundering fears, doubts over debt sustainability in the medium term and a programme of privatisations demanded by the eurozone and IMF had also proved sticking-points over recent months.
On debt sustainability, Anastasiades has already dismissed any suggestion that investors or bank depositors should be forced to take part of the burden directly, as some in Europe have suggested.
“Any reference to a ‘haircut’ on deposits or public debt is not accepted,” the president said recently, a point equally made by Sallis.
On privatisation, the signals in the Cypriot media have been less hostile than under the country’s previous Communist president.
As with neighbouring Greece’s repeated bailouts, the position of Germany during a general election year is expected to prove crucial for any accord on Cyprus.
Rehn had told German news weekly Spiegel on Sunday that Cyprus might be forced to leave the eurozone if it did not get a bailout, warning that “if Cyprus became bankrupt in a disorderly way, the result would be almost certainly an exit from the eurozone.”
The Eurogroup also gave its strongest signal yet on Monday that Ireland and Portugal, each of whom want debt maturities on their bailouts extended to hasten their return to commercial money markets, would likely find the terms of their rescues eased once more.
Dijsselbloem said the issue would be run past non-euro EU counterparts who join enlarged talks on Tuesday morning — when discussion is likely to be lively on planned bank bonus curbs staunchly opposed by Britain — and if agreement is reached there, then new terms would be drawn up.
In another positive sign for the eurozone and an easing of the debt crisis strains, Latvia earlier on Monday signed its formal bid to join the currency area.
Prime Minister Valdis Dombrovskis inked the document at a ceremony in Riga, paving the way for the Baltic state of two million to become the 18th eurozone member in January 2014.