Cyprus to ask EU for more help

Cyprus’ president has said that he will ask the European Union to provide more help for the crisis-hit country, which has to pay for most of its expected €23bn bailout.

President Nicos Anastasiades said that he will send letters to EU Commission president Jose Manuel Barroso and EU Council chief Herman Van Rompuy telling them of the “need for a change of EU policy” toward Cyprus by offering additional assistance because of the crisis and “the measures that they imposed on us”.

News of the letters sparked speculation among investors that the country was pushing for more money from its international creditors – the European Commission, European Central Bank and the International Monetary Fund (IMF) - under its bailout package.

But government spokesman Christos Stylianides said this request for help would only involve asking to tap the EU’s structural and social cohesion funds, which are run by the EU to help countries develop their infrastructure, for more money and would not be seeking more bailout cash.

Last month, Cyprus and its international creditors agreed a €17bn bailout package for the country so it could rescue its banking sector and prop up its economy. The euro countries and IMF would contribute €10bn, with Cyprus making up the rest, mostly by overhauling its banks.

Since then, the bailout package has increased to €23bn, with Cyprus’s share swelling to €13bn, according to a draft document by its creditors.

The €6bn increase is due to economic forecasts for the country being much worse than originally thought. Cyprus is heading further into recession and the government will now have to have to make up for more lost tax receipts and missed loan payments.

The deputy leader of Cyprus’s ruling Democratic Rally party today downplayed the jump in the country’s bailout share, calling it “a simplistic approach” that does not “correspond with reality”.

Averof Neophytou said the additional amount that Cyprus must fork out had already been calculated and incorporated into the overall bailout deal and does not mean that the country will now have to scrounge for more cash.

Neophytou explained that €10.6bn will come from the restructuring of its banking sector, which includes imposing heavy losses on deposits more than €100,000 in the two largest lenders – Bank of Cyprus and Laiki.

The rest of the money will come from additional taxes, a rollover of the country’s debt held by domestic investors, privatisations, a part-sale of the central bank’s gold reserves and better terms for the country to pay off a €2.5bn loan that Russia had granted in 2011.

As part of its bank restructuring, and to prevent a run on the country’s banks, Cypriot authorities have imposed a series of capital controls – the first that any country has applied in the eurozone’s 14-year history.

Late last night, the country’s central bank lifted all restrictions on payments up to €300,000 to re-energise cash-starved domestic businesses which had difficulty paying suppliers and employees. Moreover, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from €5,000 to €20,000.

But a daily cash withdrawal limit of €300 remains in place, as well as a ban on cashing cheques. Bank-to-bank transfers are limited to €2,000 per person per month and €10,000 for businesses. The decree also introduced a new restriction on opening new accounts in banks where customers had never done business before.