International

Cyprus denies seeking bailout revision

NICOSIA: Cyprus said Tuesday it was not trying to wriggle out of terms of an EU/IMF bailout imposed on the island, but said some provisions of the deal needed tweaking to address problems in its battered banking sector. “Every effort will be applied so our positions are met with understanding by our partners ... We are not seeking renegotiation but an adjustment of certain measures,” Cypriot President Nicos Anastasiades told reporters.

The eurozone island nation was forced to shut one bank and seize deposits in a second to qualify for 10 billion euros in aid from the International Monetary Fund, European Central Bank and European Union in a bailout in March.

The bailout was widely considered to have been poorly managed, with financial markets surprised by losses imposed on depositors and stirred up by contradictory statements beforehand.

Anastasiades, who has criticized the bailout as being ill-conceived, said he would use an EU leaders’ meeting this week to voice his concerns.

He did not go into specifics but said what he would seek was related to solving problems in the island’s banking sector. Anastasiades said he would also try to meet with ECB President Mario Draghi.

In a letter to European leaders in early June, Anastasiades urged lenders to provide a long-term and sustainable solution to liquidity issues faced by Bank of Cyprus, a bank which absorbed assets from wound-down Laiki Bank.

Under terms of the bailout deal, Bank of Cyprus assumed a 9.5 billion euro legacy liability from Laiki, which had been withdrawing emergency liquidity assistance from the European Central Bank.

Both banks were forced to sell their Greek operations. In Laiki’s case it also concerned disposal of assets pledged against its ECB assistance liability amounting to 3.8 billion euros. Bank of Cyprus was subsequently forced to pledge assets of its own to fill the collateral shortfall, inhibiting that bank’s own ability to get ECB liquidity assistance, Anastasiades said.

In his letter, Anastasiades suggested part of the ECB assistance liability be converted into long term bonds and transferred to a special vehicle.

He also urged the ECB to restore the counter-party status of Bank of Cyprus, and an easing of capital controls, initially imposed to avert a run on banks.

 
A version of this article appeared in the print edition of The Daily Star on June 26, 2013, on page 6.

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