No Need To Fear An EU Bailout - Shiarly
Finance Minister Vassos Shiarly tried to soothe fears over Cyprus joining the European Support Mechanism (ESM), saying that people do not need to fear it and that getting a bailout could help the economy in the long term, according to his comments to state radio.
Although President Demetris Christofias said his government is working hard to avoid an EU bailout, his finance minister is obviously preparing for the possibility. The former banker is the first official to honestly face the likelihood, possibly because he fully understands how states are financed but most probably because he just committed to bailing out Laiki Bank to the tune of 1.8 billion euros. This money will have to come from somewhere, and with the island excluded from international money markets because of high borrowing costs, the answer may lie in the ESM.
But foremost in peoples' minds is Greek peoples' economic and social suffering. Many political leaders who are closely followed in Cyprus blame the EU/IMF bailout which came attached with austerity conditions. Cyprus has even organised emergency food and clothing aid to Athens residents, and the thought of an EU bailout is a frightening one.
Shiarly said that there are other, more successful examples to look at, such as Ireland.
Economically-speaking, there is little room left to manoever. Earlier this month, the European Commission said that if the Cypriot banking system has to resort to a government bailout, the state's debt would rise to 85 percent of GDP, further weakening the long-term sustainability of public finances at a time when Cyprus has limited access to international borrowing markets.
The government deficit is set to narrow to 3.4 percent of GDP in 2012 and 2.5 percent of GDP in 2013, according to the survey. This is higher than projections from the finance ministry which see a deficit of 2.5 percent this year.
Whether the finance ministry's projections will hold after the bailout remains to be seen, but this now seems highly unlikely given the Commission's estimates and the cost of the bank's bailout.
Shiarly is due to submit a new package of cost-cutting measures aimed at lowering the island's deficit, which was at 6.1 percent last year.
The economy has taken blow after blow in the last four years, starting with a sudden rise in government spending in 2008/2009, the deadly explosion at Mari naval base in 2011 resulting in hundreds of millions of euros in damage to the island's main power plant, and the sovereign debt crisis which reached its peak in 2011/2012, all of which have resulted in a double-dip recession that most experts believe will be difficult to escape.
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