Europe bids to close Cyprus bailout gap
(DUBLIN) - Eurozone finance ministers meet Friday in Dublin hoping to finish negotiations on the contentious Cyprus bailout after Nicosia said the cost had surged to 23 billion euros ($30 billion).
The jump means that Cyprus will now have to find 6.0 billion euros more than the 7.0 billion euros mooted in a preliminary agreement reached on March 25, in order to secure an EU-IMF contribution of 10 billion euros.
The ballooning cost of the Cyprus bailout means that Nicosia has to deliver almost double its original contribution, in order to find the first 75 million euros urgently required to cover public-sector salaries.
Cyprus has proved to be a eurozone watershed, with small bank depositors, who had thought themselves protected by an EU guarantee, at one point being asked to cough up part of their savings to help fund the rescue.
The move sparked uproar, forcing officials to beat a retreat and spare those savers with deposits under 100,000 euros ($130,000).
Savers above that amount, however, are likely to take a very considerable hit, perhaps as much as 60 percent, to pay for the dismantlement of the island's No. 2 bank Laiki and the radical restructuring of Bank of Cyprus, the biggest.
The restructuring of the banking sector is expected to yield up to 10.6 billion euros, a key part of a total 13 billion euros demanded by Europe and the International Monetary Fund.
Another billion is to be gleaned from a corporate tax rise to raise 600 million euros and sale of excess gold reserves expected to fetch 400 million euros.
The previous contribution from Cyprus was initially put at seven billion euros. But draft European Commission documents leaked Thursday showed the scale of the gap needing closed at the Dublin meeting.
"The numbers Cyprus needs have evolved," said one negotiator blaming a worse-than-forecast recession on the eastern Mediterranean EU outpost.
The conditions, if Nicosia is to get money soon, also involve a wholesale re-packaging of old state debt, as well as new tax rises and the sale of gold reserves -- each touchy subjects for the Cypriot government and investors.
Even then, the final trade-off will require the approval of national parliaments notably in eurozone powerhouse Germany.
A report from the European Commission, European Central Bank and IMF Troika -- stating that the bank restructuring will put Cyprus into deep recession for two years, with its gross domestic product now expected to shrink by about 12.5 percent over the next two years.
During their Dublin talks, the finance ministers will also consider extending debt repayment dates for Portugal and Ireland.
The weekend meeting marks a return to the market and public gaze for Eurogroup chairman Jeroen Dijsselbloem, who was heavily criticised for his handling of the the aftermath of the Cyprus deal.
After months in which the EU debt crisis appeared to be on the cusp of the wane at least, Cyprus has reignited broader concerns despite its small size.
Worries that Slovenia may need a bailout refuse to go away, Spain stubbornly toils with record unemployment and the political deadlock in Italy has fuelled worries that the eurozone's third largest economy may not be able to stay on top of its massive debt.
Alongside host Ireland, Portugal is seeking a 15-year relaxation on the repayment terms of its rescue loans -- with a possible compromise at seven years, according to EU officials.
Portugal appears ready to offer fresh "guarantees," a top source underlined.
Meanwhile the renewed drive to stamp out tax fraud, launched amid a scandal embroiling French President Francois Hollande's government, should also feature prominently.
Inspired by a 2010 US law requiring automatic reporting of bank account information, Britain, France, Germany, Italy and Spain this week agreed to work on setting up a multilateral information exchange facility they hope will serve as a template for a wider system.