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Greece cannot give financial aid to Cyprus

15 March 2013 / 15:03:20  GRReporter
2444 reads

Victoria Mindova

"We deny the information that Greece will give two billion euro for the bailout to Cyprus," representatives of the Ministry of Finance told GRReporter exclusively this week. Various pieces of information about the role of Greece in the bailout to Cyprus have emerged over the last few days, causing confusion and anxiety.

In the middle of the week, the Financial Times reported that Athens and Nicosia were negotiating the mutual assistance before the extraordinary meeting of euro zone finance ministers on drawing up a common policy in the negotiations with international lenders. Nicosia also requested two billion euro from the Greek Financial Stability Fund to support the refinancing of Greek banks in Cyprus. The Greek side was quick to deny the information that had leaked from Nicosia. Representatives of the banking circles explain that the assistance is not sufficient to local banks and Athens cannot afford to give money to Cyprus.
 
Currently, Cyprus, like Greece in 2010, is on the verge of signing an agreement for a bailout from Europe that will prevent another euro zone member from becoming bankrupt. According to the information presented by local media, Cyprus needs approximately 17.5 billion euro. Around 10 billion euro will go to recapitalize banks and the remaining 7 billion euro will go to the foreign debt. At the same time, in Brussels a bailout is under consideration that will not exceed 10-13 billion euro, which is contrary to the assessment of Cypriot economists.

Cyprus’ Finance Minister Michael Sarris is expected to visit Moscow early next week to renegotiate Russia's involvement in the Cypriot bailout. So far, Cyprus has taken a support loan from Russia to the amount of 2.5 billion euro and at an interest rate of 4.5% and it has to pay it off by 2016. Sarris is expected to ask Moscow to reduce the interest rate and to reschedule the loan by five years as reported by To Vima. Russia, in turn, has expressed its interest in buying Laiki Bank and in taking part in the capital increase of Cyprus Bank.

According to Reuters, Europe’s bailout to Cyprus will include an increase in the corporate tax rate from 10% to 12.5%, the ​​tax on profits from the interest rates on three-year deposits and most probably, a one-off tax of 5% on deposits, which is expected to bring it to 3.5 billion euro. Cyprus’ privatization programme includes the national telecommunications network, the electricity producing and distributing company and the port administration. It is expected to bring proceeds of between 2 and 3 billion euro.

European leaders are considering imposing a tax on stock exchange transactions and are discussing the highly controversial measure of haircutting the deposits. "Really and categorically - and this doesn't only apply in the case of Cyprus but for the world over and the euro zone - there really couldn't be a more stupid idea (than haircutting the deposits)," said Michael Sarris cited by Reuters. Like other countries in the European Union, Cyprus also guarantees the bank deposits of citizens amounting to 100 thousand euro. However, this will not keep the deposits if the lenders decide to compensate the holes in the bailout by imposing a tax on the money in the banks.

The issue of the financial salvation of Cyprus is the basis of the extraordinary meeting of euro zone finance ministers this Friday. Eurogroup’s chairman Jean-Claude Juncker said he could not imagine that this weekend would be over without Europe deciding on the final version of the bailout to the country. However, a political analyst from Athens commented for GRReporter that it was not realistic to think that the European politicians would reach consensus at just one meeting.

 

Tags: EconomyMarketsCyprusBailoutGreeceCrisis
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