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EU says new Cyprus accord must guarantee debt sustainability

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(Globalpost/GlobalPost)

Any new Cyprus bailout must guarantee that its debt burden is sustainable, the European Commission said Wednesday.

After the Cyprus parliament rejected a bailout agreed Saturday because it included an unprecedented bank deposit levy, it was now up to Nicosia to "offer an alternative scenario ... which guarantees debt sustainability," a Commission spokesman said.

Any new proposal would have to be agreed by all involved, including Cyprus, spokesman Olivier Bailly said, adding that Brussels and Nicosia were in constant contact in an effort to find a solution.

The troika of the European Union, European Central Bank and International Monetary Fund agreed to provide Cyprus with 10 billion euros ($13 billion) in rescue loans on condition that Nicosia raised another 5.8 billion euros through a levy on bank deposits.

They refused to offer more than 10 billion euros because to have done so would have increased the country's debt burden to unsustainable levels way above the IMF benchmark of 100 percent of Gross Domestic Product.

The EU debt ceiling is 60 percent but most member states have breached this limit after years of overspending.

Bailly noted that the bank levy plan had been approved by all at the eurozone finance ministers meeting which cleared the bailout early Saturday, although the European Commission had expressed some reservations before offering its endorsement.

The finance ministers group of the 17-nation eurozone said late Tuesday that it stood ready to help Cyprus but reiterated that Nicosia would still have to find the 5.8 billion euros covered by the bank levy.

The bank levy sparked outrage in Cyprus, with parliament voting to reject the bailout deal as government MPs abstained.

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http://www.globalpost.com/dispatch/news/afp/130320/eu-says-new-cyprus-accord-must-guarantee-debt-sustainability-0