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Friday 10th July 2020
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Bailout request before end of month

EURO zone member Cyprus strongly hinted on Monday it may have to apply for an international bailout before the end of this month, both for its banks and its general coffers.

“The issue is urgent. We know the recapitalisation of the (island’s) banks must be completed by June 30, and there are a few days left,” Finance Minister Vassos Shiarly told journalists.

Cyprus is under growing pressure to apply for aid to salvage its second-largest lender Cyprus Popular Bank, bowed by its exposure to debt-crippled Greece, ahead of a regulatory deadline of June 30.

It assumes the rotating EU presidency for six months the following day.

Responding to a question on whether any potential bid for aid would be focused on support for its banks, Shiarly said in his view it would be a comprehensive package, based on existing practice.

“When one applies to the support mechanism you take into account all the facts, including needs which may arise in coming periods. Consequently it would be a comprehensive request covering not only present circumstances and the recapitalisation of the banks but also future needs,” he said.

The cash-strapped country, shut out of financial markets for a year and running deficits, will need the equivalent of 10% of its gross domestic product just to prop up Popular, which is looking for an investor willing to fill a 1.8 billion regulatory shortfall, or the government must come to its aid.

Shiarly said he could not say how much a potential aid request could total. Cyprus has just over 2.0 billion euros in short-term debt maturing next year.

Timings wise, and because bailouts typically occur over weekends to minimise disruption to markets, Cyprus would in theory have a slot to make any application next weekend, when the focus will be on the Greek election on June 17, or the weekend of June 23-24.

Yet the island, representing 0.2% of the euro zone’s economy, has so far shown reluctance to take the plunge, spooked at the experience of Greece and worried that pressure could be applied to change its tax regime which is one of the lowest in the EU.

As potential leverage, it is negotiating separately with a third country in the hope that it could secure better bailout terms from its EU partners.

That country has not been named, but it is widely thought to be China. Cyprus received a 2.5 billion euro bilateral loan from Russia late last year, sidestepping its EU partners.

Earlier, Shiarly told lawmakers in Cyprus’s parliament that he had anticipated some conclusion to discussions at the end of May, but that he now expected news “very soon”.


  1. @Curmudgeon. Absolutely correct. However, there is a wonderfully weasel accounting technique called ‘mark to market’ still used in some companies. It’s really a forward accounting guess at what revenues will be earned in forthcoming tax years. While it may be useful for business plans and conning investors, it is virtually impossible to project future revenues (or losses and liabilities) with much accuracy. The more novel and complex the potential revenue source is, the more uncertain the figures and delivery timetables become.

    Mark-to-market was a main technique used in the giant Enron fraud to convince markets and investors that the company’s strength was N times reality.

    Gosh! Could it be that mark-to-market is what these government scallywags are using?! No,no! That would be fraud!

  2. I do believe the government is selling off the gas assets before we even get them.

    Many years ago, in a club of servicemen and women, a proposal was we allocate the gaming machines takings for the following couple of months to finance a summer ball. On the face of it, it sounded good that is until one engaged brain. How can you spend what you don’t know you’re going to have?

    I suppose requesting loans outside of the EU is politically savy – keeps the nations books under wraps for another few years and prolongs politicians wealth.

  3. @All – According to local press reports Cyprus has requested a loan from China and has also turned to Russia for another €5 billion, which as you may know has already loaned Cyprus €2.5 billion.

  4. Surely now is a once off opportunity for the EU to use the leverage of bailout funds to secure changes in Cyprus ways that bring it into line with the civilised norms of Western Europe. E.g. legal system overhaul, speedily delivered justice for Plaintiffs, title deeds for buyers who have paid for their properties, foreign lawyers allowed to practice, legal requirement for developer mortgages declared upfront and any other “impediments” which might adversely affect consumers and buyers.

    Clearly there’s a lot of work to do by Europe in making its member state behave according to generally accepted standards of EU members (at least the members which we would all want to be members). The EU has so far shirked its responsibilities in this area, and members of the EU like Cyprus threaten to bring the whole edifice down.

  5. The government of Cyprus has known the financial situation for a long time, including the bad news that we have never been privy to, yet, at the eleventh hour, there is still uncertainty about whether a bailout or a third party (China?) deal will be arranged. The choice has everything to do with the unpleasant consequences of a Euro zone bail-out. The Financial Mirror article mentions tax changes, but there are many others, such as cutting the bloated Civil Service numbers and public sector pensions, not to mention increasing the retirement age and getting other aspects of government spending back under control.

    All these will amount to a long spell in the political wilderness for the government, so they have procrastinated and consequently allowed the situation to worsen. What else should we have expected from the incompetents who turned down the proposed solution to avoiding the partition of Cyprus, when it had been accepted by the Turks?

  6. Andrew – I suspect you are right, officials know exactly what is needed but also know that European taxpayers might be up in arms with the knowledge that they will be asked to fund lavish public sector payrolls, cost of living salary increases, a benefit system out of control, state subsidised monopolies with extraordinarily high salary structures and gold plated pension provisions with in some cases multi pension provisions based on the number of pensionable positions held. Not to mention a system where payment of tax by the biggest earners is effectively non existent and only a consideration for the majority. Tax evasion is the national sport.

    I believe the low corporate tax rates are needed to permit growth but the rest of the issues will as you suggest prove embarrassing if examined closely as the finances and potential were obviously not examined on accession and certainly not at the point of joining the Euro. The conversion rate from CY£ was – well, I leave that for you to decide.

  7. Maybe the Government does not want the EU looking too closely at the accounts!! You wouldn’t let them manage a kiosk far less preside over the EU for 6 months.

  8. The lunatics will be presiding over the asylum for six months. That will be interesting.

    I bet they have a good idea exactly how much “aid” they will need, but I suspect making it public now would prove to be a little bit embarrassing.

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