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Cyprus haircut would be catastrophic: finance minister

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(Globalpost/GlobalPost)

The finance minister of cash-strapped Cyprus said on Wednesday that a haircut on deposits in local banks would be catastrophic, not only for Cyprus but the entire eurozone.

Such a possibility has been raised and, on Monday, Eurogroup finance ministers failed to rule it out if Nicosia is to clinch a bailout deal.

"We have repeated in the strongest terms that this is not an issue that is on the table," Finance Minister Michalis Sarris told reporters in Nicosia.

"It would be disastrous for Cyprus and the euro zone, and I think this message is gradually getting through to those who may have imagined that it is a possibility."

He said the issue "is not on the table for negotiation" with the so-called troika of international lenders -- the European Commission, European Central Bank and International Monetary Fund -- currently on the island.

A senior troika negotiating team began contacts with the authorities on Wednesday over what steps need to be taken to secure a bailout agreement earmarked for the end of March.

Prior to their arrival a team of technocrats was on the island collecting information on semi-governmental organisations as part of a deal to finalise financial aid.

They are checking the assets, projects and accounts of state-run enterprises such as the electricity and telecoms authority.

In order to seal a bailout agreement it could need to sell off state assets, agree a sum on bank recapitalisation and refute dirty money claims.

The anticipated 17-billion euro ($22.2 billion) figure is roughly the same as the island's GDP, and would increase debt to more than 140 percent of GDP, a level considered unmanageable.

Nicosia wants to conclude a deal as soon as possible as it quickly runs out of cash to pay the bills, and Foreign Minister Ioannis Kasoulides said in Athens on Wednesday that the target was the end of March.

"The crisis and uncertainty have gone on for too long," Kasoulides said during a visit to Greek counterpart Dimitris Avramopoulos.

"The time has come to rebuild our reputation," Kasoulides said, noting that the new conservative government that came to power last month would show "wisdom" with the troika.

Eurozone finance ministers said on Monday that the long-delayed bailout deal could be struck by the end of March after Nicosia agreed to submit its banks to independent scrutiny amid worries over money-laundering

The government has agreed for an independent audit of its Greek-exposed banking sector amid allegations the island is a haven for the ill-gotten gains of Russian oligarchs.

Cypriots officials said Wednesday this assessment of the island's anti-money laundering measures would be conducted in mid-March.

Kasoulides on Wednesday said reports that Cyprus tolerated money-laundering had "destroyed" the country's image.

Cyprus requested financial assistance from the EU in June after its two largest banks sought state aid following massive losses estimated at 4.5 billion euros in a Greek debt haircut.

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http://www.globalpost.com/dispatch/news/afp/130306/cyprus-haircut-would-be-catastrophic-finance-minister