With Cyprus’ economy still teetering on the edge of collapse because its banks lost billions in their holdings in devalued Greek bonds, the new conservative-led government has agreed to let accountants check the country’s books to persuade international lenders to provide a bailout.
Some Eurozone countries are resisting helping Cyprus because of its reputation as a money-laundering haven, especially for Russian mobsters. New President Nicos Anastasiades is eager to get the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) to loan as much as 17 billion euros ($22.17,) nearly equal to the country’s Gross Domestic Product (GDP).
Eurozone leaders haven’t been able to agree on the structure of the loan because there are worries it will be so massive that Cyprus will never be able to repay it. Eurogroup Chairman Jeroen Dijsselbloem refused to answer questions on whether Cypriot bank bondholders — and possibly even depositors — should be forced to pay a share of the cost of the bailout, saying the negotiations with Cyprus’ new government were only starting, the Associated Press reported.
Cyprus can no longer refinance its debt, which forced the country to request a bailout from its Eurozone partners last June. Talks on the bailout have dragged on ever since, but no agreement was reached with the last, Communist-led government. A new, conservative administration took office last month, and negotiations are now expected to pick up speed.
The notion of forcing bondholders and depositors to pay for the banks’ financial mistakes has set off jitters from analysts who said it could frighten the markets and destroy investor confidence in the banking system.
Cyprus’ new government has earned some trust though, Dijsselbloem said, by agreeing to an independent evaluation of the policies aimed at combatting money-laundering in financial institutions. Critics said Cyprus is a favorite place for Russian mobsters to hide their money.
German lawmakers, who have to approve each European bailout agreement, threatened to veto helping Cyprus unless it comes with tough oversight of Cyprus’ financial institutions.
International Monetary Fund chief Christine Lagarde and a group of nations including Germany and France met with new Cypriot Finance Minister Michalis Sarris after the official meeting’s end, an EU diplomat said, according to the AP.
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