21/01/2013 07:31
The support program of Cyprus will be reviewed by the Eurogroup today without having clear indications on the capital needs of the banks and the time frame of finalization of negotiations launched in July.
The Cypriot authorities and the international creditors failed last week to complete consultations on the capital needs of the banks and talks with Pimco continue.
European officials seem to place the finalization of the Cypriot program after the new government takes office, around the end of March.
But this seems to be the optimistic scenario. The sustainability of the Cypriot debt - that touches differences among the creditors for months now - refers to a more lengthy process.
Scenarios to make debt sustainable in Cyprus give and take in the international press and among international analysts.
It is almost certain that the new government will have to proceed with privatizations, with which it is estimated that Cyprus will be able to secure enough money to reduce debt.
Even with the privatizations, there are still doubts about sustainability. Creditors seem to discuss a debt haircut or even a haircut of the unsecured Russian creditors of the banks.
Russia is expected to have its own role in supporting Cyprus’s efforts with the write-off or restructuring of the five-year loan of €2.5 billion given in 2011. Some encourage a more active role of Russia’s support of Cyprus while others believe that the presence of Russia is problematic.
Cyprus supports that in order the debt to become sustainable, banks should be recapitalized on the basis of the baseline scenario of Pimco, which estimates their capital needs close to €6 billion. It argues that part of the money for banks should be paid directly from the support mechanism. The IMF agrees with the direct recapitalization but stumbles at the German opposition, who will bear the burden of any bank support in the euro area.
Things are becoming increasingly difficult after statements by German officials on money laundering. The German media yesterday talked about a visit of German inspectors to Cyprus for on-site investigations. The President of the Republic stated that he is not aware of such information.
The Cypriot authorities support that they have adopted many more provisions for combating money laundering than other countries, but the German government raises the issue of their implementation, not just voting various laws.
The Cyprus issue has started to take dimensions in the international press with estimates on the systemicity the Cyprus issue, varying. Most analysts warn that despite the small size of Cyprus it may disturb the increasing tranquility in the markets.
In case of a haircut, they warn, markets will receive negative messages about the willingness of European leaders to safeguard the stability of the eurozone. The fragile condition in Spain and in countries such as Ireland, Portugal and Greece is likely to change if messages about the handling of the Cyprus question are mixed.
The delay in finalizing the Cypriot program raises doubts about the government's ability to continue paying wages and pensions. The government itself has said that it has money until the end of March.
The Cypriot authorities and the international creditors failed last week to complete consultations on the capital needs of the banks and talks with Pimco continue.
European officials seem to place the finalization of the Cypriot program after the new government takes office, around the end of March.
But this seems to be the optimistic scenario. The sustainability of the Cypriot debt - that touches differences among the creditors for months now - refers to a more lengthy process.
Scenarios to make debt sustainable in Cyprus give and take in the international press and among international analysts.
It is almost certain that the new government will have to proceed with privatizations, with which it is estimated that Cyprus will be able to secure enough money to reduce debt.
Even with the privatizations, there are still doubts about sustainability. Creditors seem to discuss a debt haircut or even a haircut of the unsecured Russian creditors of the banks.
Russia is expected to have its own role in supporting Cyprus’s efforts with the write-off or restructuring of the five-year loan of €2.5 billion given in 2011. Some encourage a more active role of Russia’s support of Cyprus while others believe that the presence of Russia is problematic.
Cyprus supports that in order the debt to become sustainable, banks should be recapitalized on the basis of the baseline scenario of Pimco, which estimates their capital needs close to €6 billion. It argues that part of the money for banks should be paid directly from the support mechanism. The IMF agrees with the direct recapitalization but stumbles at the German opposition, who will bear the burden of any bank support in the euro area.
Things are becoming increasingly difficult after statements by German officials on money laundering. The German media yesterday talked about a visit of German inspectors to Cyprus for on-site investigations. The President of the Republic stated that he is not aware of such information.
The Cypriot authorities support that they have adopted many more provisions for combating money laundering than other countries, but the German government raises the issue of their implementation, not just voting various laws.
The Cyprus issue has started to take dimensions in the international press with estimates on the systemicity the Cyprus issue, varying. Most analysts warn that despite the small size of Cyprus it may disturb the increasing tranquility in the markets.
In case of a haircut, they warn, markets will receive negative messages about the willingness of European leaders to safeguard the stability of the eurozone. The fragile condition in Spain and in countries such as Ireland, Portugal and Greece is likely to change if messages about the handling of the Cyprus question are mixed.
The delay in finalizing the Cypriot program raises doubts about the government's ability to continue paying wages and pensions. The government itself has said that it has money until the end of March.
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