Cyprus bailout swells to $30 billion
BY JUERGEN BAETZ | The Associated Press April 11, 2013 10:40AM
An elderly man passes an empty closed shop with a sign reading in Greek " To rent" in central Nicosia, Cyprus, Tuesday, April 9, 2013. Last month, Cyprus agreed that bondholders, investors and savers with more than 100,000 euros in the country's two largest and most troubled banks will take significant losses in exchange for a 10 billion euro ($13 billion) rescue package. (AP Photo/Petros Karadjias)
BRUSSELS — The cost of bailing out Cyprus has swollen to euro 23 billion ($30 billion), with the crisis-hit country having to take on the lion’s share of the measures needed to avoid bankruptcy, according to a draft document by the country’s international creditors.
The draft document, obtained by The Associated Press Thursday, says the country will have to find 13 billion euros ($17 billion) — an increase on the 7 billion euro contribution agreed during the country’s chaotic bailout talks last month. The money will be raised by imposing heavy losses on large bank deposits, levying additional taxes, privatizations and a part-sale of the central bank’s gold reserves.
“The sheer size of the increase has underlined the extent of the enormous challenges facing Cyprus itself,” Jonathan Loynes of Capital Economics said in an analyst note.
The so-called troika of international creditors — the European Commission, the European Central Bank and the International Monetary Fund — are set to grant the Mediterranean island nation a 10 billion euros ($13 billion) rescue loan package to recapitalize Cyprus’s shaky banking system and keep the government afloat. For its side of the deal, Cyprus was supposed to contribute 7 billion euros to the rescue.
In the latest draft document, however, the troika has revised the overall cost of bailing out Cyprus amid a gloomier economic outlook for the country, adding an extra 6 billion euros to the bill.
The Cypriot government blamed the gulf between the original total and the new 23 billion euro bill on the previous leftwing administration and the time it took to properly negotiate a bailout — delays which pushed the cost of recapitalizing its banks much higher.
Government spokesman Christos Stylianides accused former President Dimitris Christofias of failing to “take responsibility and complete indecisiveness” in promptly negotiating a bailout.
As part of the original deal, Cyprus agreed to raise the 7 billion euros mostly by overhauling its bloated banking industry and tax increases. This would involve breaking up its second-largest bank, Laiki, and imposing losses on savers who have more than 100,000 euros there and in another lender, the Bank of Cyprus.
The draft creditor document now shows that the troika now expects the break-up of Laiki to raise 10.6 billion euros, which will be used to prop up the Bank of Cyprus.
The document also says Cyprus will have to sell off parts of its gold reserves — raising another 400 million euros in the process — a first for a bailed-out European country.
However, Cyprus Central Bank spokeswoman Aliki Stylianou said that the Central Bank Governing Board “is not considering any such gold sale at this time.”
The eurozone’s 17 finance ministers are gathering Friday at a meeting in Dublin where, they are expected to discuss a raft of documents spelling out the details of the assistance package for Cyprus.