CYPRUS is looking to Europe, Russia and China seeking for the best terms for a €4 billion bailout package.
Deputy Europe Minister Andreas Mavroyiannis said that Cyprus needs €1.8 billion to recapitalise the Popular Bank within the next few weeks and that other banks may also need money. The Island could seek up to €4 billion in financial aid if it turned to the European Union for help.
During a visit to Ireland he said that no decision had been taken about how to bail out the Island’s banking system. But he said Cyprus could get help from Russia, China or both, and that their aid could even be mixed with European funds.
“Everything is on the table,” he said. “It can be a combination (of bilateral and European money). Whatever it is it will have a part of European – money or conditionality. I don’t know if it will be Russia or China,” he said.
Cyprus has been shut out of capital markets for more than a year, with many of its banks overexposed to the Greek debt crisis. It must find the equivalent of 10% of its gross domestic product by the end of this month to recapitalise Cyprus Popular Bank if no private investor is secured.
Mr Mavroyiannis said that borrowing money from the European Union (EU) carried baggage with it that bilateral loans did not.
“The problem with going through the (European bail-out) mechanism is that it received a very negative connotation because of what happened in Greece,” he said.
“Politically, when you say you are going into a mechanism people consider that there is something that is very negative. Politically, the government tries to avoid having to bear this negative effect.”
Nonetheless he said that Cyprus would stick to its EU obligations. “The money can come from outside, but you need to operate within the framework of the union,” he said.
Mr Mavroyiannis said that were Cyprus to tap the EU bail-out fund, it might ask, as a safety buffer, for more than the €1.8 billion it needs. “We are talking about €3 billion or €4 billion.”
My Cold War experience tells me ‘be careful, be very careful who you get into bed with’. Put whatever connotation you wish on that but the truth is accepting financial bailouts from either China or Russia, will have political repercussions for Cyprus.
Given what we have now, perhaps that’s not as bad as first thought.
Lots of people are in agreement re: the incompetence of the leadership in Cyprus, the government’s “turning its back on our fellow European partners as they do not wish to open up their books for EU scrutiny†argument.
But I think that many people are missing the point.
Let’s assume, for one brief moment, that Christofias is NOT an idiot (big assumption, I know, but bear with me).
Let’s have a look at what’s happened to countries who’ve taken the EU ducat (Merchant of Venice allusion there. Sorry).
Have a look at this: Should The European Union Bail Out Its Member Countries?
So, do (illegal – look at Treaty of Lisbon article 125) bailouts actually work?
The debate is open, but many people believe that they do not. They impose incredible hardship on peoples in order to square the circle of a common currency that is structurally flawed (without full political and economic integration, which is what Barroso’s trying to do now) and get countries even further into debt, as well as taking away from them ALL budget making powers. Oh, and their right to chose their own leader, if the leader doesn’t agree with the EU.
Christofias has looked at all the info and made a decision: the pound of flesh is too high a price to pay for a short-term solution. Especially if, by the time his banks and country have to repay the EUsurers (I thought that one up myself!), the currency no longer exists and the debts disappear along with the financial institutions that lent the money in the first place.
To keep the present status quo (the cosy rusfetti, as alluded to a million times before by many in these columns) is El Presidente’s main aim. Applying to the ESFS won’t do it and won’t work anyway.
So, in a line from the Danny DeVito film “Other People’s Moneyâ€Â, the Russians and Chinese are NOT Cyprus’ best friends: they are their ONLY friends, in order to keep things just how they are.
Important question though is: at what price?
We’ve all got our own ideas on that one…
Gavin, you make some fair points as usual, and you final paragraph sums it up nicely.
Unfortunately the world is again leaving Cyprus behind, and not in a good way.
This is mainly due to a chronic lack of leadership or action from a Government which is orchestrated by the dogmatic Mr Catastrofias who seems incapable of seeing the blindingly obvious choices that are needed for Cyprus to keep up and stay safe.
The same dogmatic attitude that led to the Mari disaster is now leading to a further potential disaster for the Cypriot people to suffer whilst being told that El Presidente is on their side which couldn’t be further from the truth if it was launched into deepest outer space.
Snubbing their ‘partners’ in the EU whilst dallying with Russia and China is just another example of this dogmatic attitude which is akin to storing up unstable explosives next to Cyprus’s future prosperity.
Of course, taking the non dogmatic, but correct approach of applying to the ESFS for help would lead to some embarrassment for the Government in the short term, when their Mickey Mouse finances were opened up to public scrutiny, but this would also lead to some long overdue, but necessary actions to tackle the current unsustainable budget imbalances including the excesses of 39 overstaffed and overpaid Semi-Governmental Organisations such as EAC, and the woefully overstaffed, overpaid and inefficient Pubic Service.
No doubt there would be some issues involving the spoiled and often pandered to ‘Social Partners’ which would need to be resolved during this introductory spell of reality checking, but with the backbone of the ECB and IMF I’m sure any ‘dynamic’ action that may be taken would not result in any major policy changes.
These actions coupled with the gradual introduction of a fair and effective competitive environment with beefed up Consumer protection, and effective application of EU rules and laws would start to produce some real results and hope for the future.
Should I have started this piece with ‘Once upon a time in a land far far away…….?
Fascinating insights! (from Mr Gavin Jones). And I agree with the conclusions wholeheartedly.
Phidias.
I naturally don’t know how old you are so indulge me a little. The same applies to anyone else who cares to read the following.
I remember Cyprus as a child and teenager in the fifties and sixties when my mother (Cypriot) used to bring me to the island from austerity Britain for long summer holidays. I know that it’s very easy to reminisce in a rose-tinted spectacles sort of way about one’s childhood but coming to the island was like opening a magic box and I know that I wasn’t hallucinating: warm-hearted people with boundless, unconditional hospitality; simple pleasures; nothing too much trouble. So where has it all gone wrong?
I think it’s far too easy to put the blame solely on membership of the EU and joining the euro as this is only part of the equation. My own view, for what it’s worth, is that the ruling political clique, dominated by lawyers, is not fit for purpose. Its mentality has not adapted to the modern era and is seeped in overt cronyism, family ties and in-built corruption. Furthermore, the judicial system is totally inadequate, biased and unable to dispense natural justice. In short, the country continues to be run along the lines of my mother’s village in the Karpas peninsula.
You’re right, Phidias. Cyprus was once “wealthy and cheap” as you put it. Not necessarily ‘wealthy’ in the financial sense but more in the sociological meaning of the word. And this is not some romantic notion with me harking back to some halcyon era because life in the villages was hard. I’m sure you know what I mean.
No. The rot set in well before joining the EU and euro and I would describe it as a sort of moral bankruptcy which has invaded both public and personal life. One only has to look at the thousands of horror stories regarding title deeds which dominate this website and elsewhere and the involvement of developers, banks and lawyers in this scandal. And the government condones behaviour such as this.
I’m often countered with the argument that it’s the same in the U.K., America and elsewhere. Corruption is indeed a universal scourge. However, in Cyprus the laws to combat it are hardly ever enforced. THAT’S the difference and it’s become an accepted way of life.
Finally, you might well ask what has the above got to do with Cyprus seeking help from Russia and China’. To my mind everything.
I’m afraid that the only route to national nirvana is for the current political and judicial system to be totally overhauled and a new generation brought in to clean it all up. Until and unless this happens, we’ll continue to witness the ongoing amateur dramatics of a discredited establishment leading their countrymen to even more horrifying economic as well as geopolitical disasters.
GET OUT OF EU.
CYPRUS used to be a wealthy and cheap to live country until we joined EU.
LIST THE BENEFITS TO OUR COUNTRY ON ONE HAND.
I SEE YOU ARE BATTLING
See how Cyprus likes this more insidious form of colonisation.
You all think the same as me, Looks like the association of Cyprus with the European people and its long time Friends (Great Britain and Greece) does not count for any sensible thinking these days.
It would seem it’s look after number one time in any way you can.
The rules of the EU are obviously to much for the Cypriot Government to comply with. So lets look at all other avenues at any future cost to the Island’s people and once tranquil way of life.
But still they were quite happy to take the money for road and infrastructure improvements and incentives to build as many properties as they have, luring in unsuspecting British with the promise of a home for the future in the sun. As we now know most of us have been sold somewhat short on the glossy promises. Even lied to with no redress.
Now the very same people can go to countries and do the same only on a scale us normal people can only dream about.
What will be the consequence of this in the future?
So lets forget that future like they do and enjoy the present.
Gavin – well put. The last thing we need is EU / IMF accountants looking at ways that we could reduce the deficit as the answers, although obvious to most will not be accepted by the Unions or current government.
It must be nice to have other peoples money, in unlimited quantities, to spend on populist vote buying measures, without having the responsibility of arranging for its payment back.
My guess is that we need in the region of €12 billion at the moment to write down current debt and of course that may rise dependant on what happens in Greece on Sunday.
It seems we are still reluctant to take the medicine needed and instead are willing to sell the nation to Russia or China. I wonder what percentage of future gas and oil revenues they will be given in exchange for a slightly lower rate of interest on a loan.
There goes the gas, the 30 year lease to the Chinese is now a given and if anyone wants to buy Aphrodite’s rock make us an offer.
The more I read the more I despair that the crooks running Cyprus are buying time so they can run off with their loot leaving the average Cypriot with absolutely nothing and then some.
They always have other reasons why help is not required. The real answer is they need time to clear out and whoever is left can carry the can.
A personal opinion.
Yet more funds from Russia and/or China are what this government wants. A bailout from the EU would mean the troika crawling all over the state’s finances and that’s the last thing that the Cypriot political establishment wants. This scrutiny is the “baggage” to which the Deputy Europe Minister refers and that would never do if at all possible.
As for talk of a “safety buffer… of about €3 or €4 billion”, this is hardly the stuff of serious fiscal speak and just shows up the lackadaisical use of words and figures when it comes to this government. The Minister might as well pluck other numbers out of thin air and quote €6, €8 billion or more: totally amateurish and hardly inspirational.
Heaven help Cyprus.