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Eurogroup for CY in the dark

12/04/2013 11:35
There is much uncertainty that complicates the accurate forecasts for the macroeconomic and financial environment in Cyprus, Commissioner for Monetary Affairs, Olli Rehn admitted today.

On his way to the critical Eurogroup meeting, which is expected to finalize the Memorandum of Cyprus, Mr. Rehn noted that following the decisions taken, the data in the country changed.

"There is an ongoing assessment of the economic situation of Cyprus and we are working together with both the ECB and the IMF to provide an economic projection about growth in Cyprus”.

“In this situation there is so much uncertainty because of recent events that it is very difficult for anyone to provide exact and precise forecasts”, he said.

"In this situation there is so much uncertainty due to recent events that are very difficult for anyone to provide accurate and specific predictions," admitted.

The Commission estimates in its assessment that Cyprus needs €23 billion instead of €17,5 billion that the Troika calculated in March. The basic macroeconomic projections are that the Cypriot economy will shrink by 14% over the next two years.

The depth of the recession is however difficult to calculate since the full effects of the resolution of the two banks systemic banks in the economy are not known.

The basic difference in the amount of the package lies in the additional capital needs of the banks as a result of the vertical rather than horizontal haircut of uninsured deposits.

For the Cypriot debt to be sustainable, the Commission estimates that there is a need of own resources of €13 billion, most of which (€10,6 billion) will result from the consolidation of the two major banks. Previously, the own resources were €7,5 billion.

"The debt sustainability is for us significant but also for the IMF”, Austrian Finance Minister, Maria Theresia Fekter stressed.

"For the International Monetary Fund, it must be, for regulatory reasons, a structure where it's foreseeable that Cyprus gets back on its feet. We can't accept a bottomless pit, where help is offered forever, and neither will the IMF”.

"When the numbers don't add up, there will probably not be approval from national parliaments”, she added.

Eurogroup President, Jeroen Dijselbloem said that the programme is ten billion (euros) as agreed - all other elements of the programme will be financed either from the bail-in of banks, privatisation and other elements. “There is no surprise there”.

"Cyprus is going through a very difficult time obviously. But the programme as a whole is substantial and strong enough."
In his own statements, the Luxembourgian Finance Minister, Luc Frieden said that the aid package will be of €10 billion, not more.