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Cyprus delays bailout decision, seeks popular consensus on cuts

NICOSIA: Cyprus said Wednesday it wanted to conclude a financial aid package with the EU and IMF as soon as possible, but would seek the public’s backing for any austerity drive first.

Seeking to deflect criticism that it is dragging its feet on negotiating for badly needed aid, Nicosia said it wanted as broad a consensus as possible on any bailout deal.

“Once we conclude the debate among ourselves we will invite the Troika to Cyprus,” said government spokesman Stefanos Stefanou, adding that he expected debate to “definitely” conclude by the end of the month.

Cyprus sought international assistance in June to help buffer its banks, hit by Greece’s debt crisis.

The International Monetary Fund, the European Commission and the European Central Bank, known together as the Troika, have submitted draft proposals for 975 million euros ($1.26 billion) in spending cuts by the tiny economy over the next four years.

That would be in return for a bailout expected to exceed 10 billion euros, more than half Cyprus’ 17 billion euro output.

Cyprus has instead sought an austerity drive generating more than one billion euros spread out over five years.

Alarmed at the situation in debt-crippled Greece and the austerity conditions placed on bailouts, Cyprus initially sought a 5 billion euro lifeline from Russia. That request has gone unanswered, giving Nicosia precious little time to rustle together a response to the troika which submitted its first draft of proposals in July.

With a presidential election looming in February 2013, in which President Demetris Christofias is not seeking re-election, Cyprus’s leftist government is loath to take on powerful labor unions. The Troika wants cuts in public sector salaries and privatizations.

Meanwhile Cyprus is in recession, remains locked out of capital markets and is relying on private placements to finance its deficits.

Ratings agency Moody’s, which cut Cyprus three notches deeper into junk territory on Oct. 8, highlighted the prospect of the state running out of cash in December.

 
A version of this article appeared in the print edition of The Daily Star on October 11, 2012, on page 5.
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