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NICOSIA, Feb 17 (Reuters) - Cypriots voted on Sunday to elect a new president who must negotiate a financial rescue package to keep the island nation from a bankruptcy that would reignite the euro zone debt crisis.
A deal is proving tricky to nail down since virtually all options to avoid a Cypriot default are dead-end solutions or risk hurting investor sentiment in the euro zone just as confidence slowly returns to the bloc.
Here are some of the options:
While Cyprus's financial needs are relatively low - estimated at 17.5 billion euros - a loan worth as much as the entire Cypriot economy would push debt up to as much as 140 percent of gross domestic product.
That level would likely be considered unsustainable and make it difficult for the International Monetary Fund, which has strict rules preventing it from extending aid if the recipient is unlikely to pay back the debt, to take part in a rescue.
Lenders have suggested privatisations of three state-owned companies could help pay down debt. But analysts say even estimated proceeds of as much 1.5 billion euros in a best-case scenario are unlikely to bring it down to a sustainable level.
Another option raised - and swiftly denied by Cypriot and EU officials - is to restructure the nation's sovereign debt along the lines of a deal last year that imposed losses of as much as 75 percent on Greek private bondholders.
That would undermine European policymakers' pledge that the Greek deal was a one-off. Moving ahead could spook fragile market confidence and drive up the bond yields of other euro zone members seen as in need of a similar restructuring.
And most of Cyprus' sovereign debt is held by its banks, the institutions that the writedown would be intended to rescue.
IMPOSING LOSSES ON BANKS
Slapping losses on uninsured depositors at banks has also been floated but rejected by the outgoing government and the presidential frontrunner, Nicos Anastasiades.
Analysts say the danger here too is that investors would see it as setting a precedent for other troubled states, raising the risk of a deposit flight from weaker members. Greece could be hit hard just as deposits return to its banks.
TAPPING NATURAL GAS RESERVES
One presidential contender, George Lillikas - an independent likely to finish third in Sunday's vote - has suggested shifting the focus away from traditional options and exploiting the country's vast natural gas reserves to help pay down debt.
Experts believe Cyprus could be sitting on hydrocarbons worth up to $400 billion, and Lillikas has suggested securitisation - or pledging future profits to secure loans in advance - without waiting for the gas to flow.
But analysts say the idea may be premature, given the lack of proven reserves at present. Getting any money would in any case still be years away, ruling it out as a short-term option. (Writing by Deepa Babington; Editing by Helen Massy-Beresford)