Troika headed for Cyprus to broker bailout deal

(NICOSIA) - The troika of international lenders is due to arrive in Cyprus on Thursday to complete a draft agreement on a bailout deal to rescue the island's recession-hit economy and Greece-exposed banks.

"The troika will arrive on Cyprus on Thursday with negotiations aimed at achieving agreement on granting a loan to Cyprus starting Friday," government spokesman Stefanos Stefanou said in a statement.

Troika representatives have visited Cyprus twice since June, and the announcement ends speculation that they would stay away because of the government's own counter-measures to the lenders' harsher austerity plan.

Cyprus applied for a full EU bailout in June after its biggest lenders, Cyprus Popular Bank and Bank of Cyprus, could not meet new capital reserve limits because of huge losses from their exposure to bailed-out Greece.

Eurozone member Cyprus has the unenviable tag of being the first country to hold the bloc's six-month rotating presidency, which it assumed on July 1, while also negotiating EU emergency aid.

It had wanted to sign a memorandum for EU financial aid before the Eurogroup of finance ministers meets on Monday.

A document leaked to the media shows the government apparently proposing to raise revenue through more taxation and fewer cutbacks over a longer period than proposed by the troika.

No figure has been given as to how much Cyprus actually needs, but many experts believe it will exceed 10 million euros ($12.8 billion) to prop up an 18-billion-euro economy.

It hopes to cut the debt gap by slightly more than one billion euros by the end of 2016 rather than the one billion euros in mostly public finance cuts the troika seeks by 2015.

The proposal of the troika -- the European Commission, European Central Bank and the International Monetary Fund -- is 80 percent through savings in expenditure cuts and 20 percent via increased taxes.

It reportedly wants to slash the state payroll by 15 percent, shave 10 percent off welfare benefits, scrap an inflation-linked cost-of-living allowance and roll back government-subsidised housing finance.

But the government has resisted such austerity moves it says would undermine an economy already in recession and expected to shrink by 1.5 percent this year.

The government's proposed ratio is 60:40, including a two percentage point hike in VAT to 19 percent by 2014, a five cent rise in excise duty on petrol and 150 million euros slashed off state benefits.

Speaking to reporters, Stefanou said the "government reaffirms its determination and seriousness to continue negotiating with the aim of reaching agreement on lending from the support mechanism as soon as possible.

"At this critical stage, we must put an end to the speculation and spreading of allegations that undermine market confidence, causing confusion and panic among the public and distract from the target which is to reach an agreement, under conditions that will serve the best possible interests of our country."