Eurogroup: Standing By On Financial, Economic Challenges in Cyprus

The Eurogroup is following the developments in Cyprus very closely and is ready to discuss the island's financial and economic challenges with the authorities, said Eurogroup head Jean-Claude Juncker.

Laiki Bank lost 2.5 billion euros on its Greek debt exposure and the state has undertaken to find recapitalisation funds to the tune of 1.8 billion euros. The economy is in recession and has been since the third quarter of 2011, partly due to the eurozone's sovereign debt crisis and partly due to weaker domestic demand and investment. Unemployment saw the biggest rise in the EU, up from 6 percent last year to just over 10 percent as of May 2012.

An independent assessment into Laiki Bank's financing needs is being carried out by KPMG (UK), according to DIKO MP Nikolas Papadopoulos, who said the audit would cost half-a-million euros. A similar process is being undertaken in Spain, prior to its own bailout request for Spanish banks, estimated at 51-62 billion euros.

A controversy has arisen over whether Cyprus will get part of its financing needs from Russia, which has also sent signals that it is ready to step in with a five billion-euro loan. Finance Minister Vassos Shiarly (pictured above) favours a bailout sourced from the EU, while President Demetris Christofias wants part of it to come from Russia and the funds for the banks to come from the EU. Christofias insists that the root of the problem lies with the banks' exposure to Greek debt and that the wider economy does not need help.

Christofias' latest statements on the economy are that it is 'doing well' and that if the government turns to the EFSF, it would only be to recapitalise the banks.

The divided opinions are leading to delays in the introduction of new cost-cutting measures and to a final decision for Laiki, which has until the end of the month to recapitalise ahead of ECB stress tests.

The Eurogroup appears to want Cyprus to get a loan from the European Financial Stability Fund (EFSF) that would cover both the financial sector and the wider economy's needs. In a statement earlier this week, DISY MEP Yiannis Cassoulides said he favoured a 15 billion-euro bailout from the EFSF which would cover the banks and economic needs of the country plus a margin to cover future risk in case Greece writes down more of its debt.

Juncker also commented on Greece, welcoming the country's new government and saying that he expects the Troika will be invited to review Greece's progress on its own economic reforms that were conditions of two bailouts worth over 100 billion each. The situation is urgent, and the process must be speeded up, said Juncker.

Greece is expecting a one billion euro payout by the end of the month from the EFSF, said Juncker.

Photo: Council of Europe

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