Cyprus is aiming to get a bailout of about €11.5bn from the other 16 countries that use the euro to recapitalise its troubled banks and pay its bills, officials said today.
The sum is significantly less than what potential rescuers estimate it needs.
Finance Minister Vassos Shiarly has repeatedly said that Cyprus needs around €4bn to cover expenses until 2016. But he has steadfastly refused to say how much would be needed for its banks – only that government estimates differ greatly from those of the international organisations it is currently negotiating a bailout with – the “troika” of the European Commission, the European Central Bank and the International Monetary Fund.
Two officials told the Association Press today that the finance ministry puts banks’ needs at €5bn, while the troika puts them at €9bn and possibly more.
Cypriot banks have lost billions on their Greek bond holdings and have large loan portfolios in the debt-ridden country. The key difference between Cyprus’s and the troika’s estimates is what constitutes a non-performing loan, with the troika laying out stricter terms.
The Cyprus Central Bank has declined to disclose how much it would take for banks to shore up their capital base, saying only that their exact needs will be determined through a troika-supervised stress test expected to conclude in December when the government hopes to receive the first batch of bailout money as state coffers start to run dry.
The country, the eurozone’s third-smallest economy with a gross domestic product of around €18bn, originally approached the eurozone for aid in June.
The Finance Ministry is also looking to incorporate into a bailout agreement a €2.5bn loan Cyprus secured from Russia last year when it was locked out of the international bond markets by prohibitively high interest rates. Cyprus has also asked Moscow for another €5bn.
Overall, the Cypriot government bailout target represents almost two-thirds of the country’s annual economic output.
Troika officials are expected back on the island later this month to conclude a bailout deal.
Cyprus’s left-wing government is resisting the troika’s harsh austerity measures – estimated at almost €1bn – including a 15% pay cut for public sector employees.
Cyprus President Dimitris Christofias said yesterday that he would not sign off on a bailout deal which would privatise profitable state-owned companies or scrap end-of-year bonuses and inflation-based pay rises because of the effect that would have on the domestic economy.
In Brussels, European Commission spokesman Olivier Bailly said the EU’s executive arm would await the Cypriot government’s counter-proposals, which will be discussed with opposition parties and union leaders over the next week.
The counter-proposals aim to achieve the level of spending cuts that the troika wants to see, but stretched over four years instead of three while public-sector pay cuts will be scaled to avoid hurting low-income earners.