Eurozone finance ministers approve Cyprus bailout | News | DW | 12.04.2013

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Eurozone finance ministers approve Cyprus bailout

The eurozone finance ministers have approved the long-awaited bailout package for troubled Cyprus. The decision came after Nicosia had said its budget gap was larger than it thought.

1427909 Cyprus, Nicosia. 03/28/2013 The door of a bank in Nicosia. Cypriot banks reopened for the first time in two weeks, while restrictions on capital movements have been imposed. Vladimir Astapkovich/RIA Novosti pixel

Zypern Bank Of Cyprus

The finance ministers finalized the terms of the 10 billion euro ($13 billion) bailout for Cyprus on Friday, originally agreed on in March by the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

But the situation has changed dramatically, with Cyprus' announcement on Thursday that they need a substantially bigger sum to plug the hole in their budget: 23 billion euros ($30 billion) rather than the 17.5 billion previously stated.

"The memorandum of November initially focused on 17.5 billion euros in financing, but now it has reached 23 billion euros," government spokesman Christos Stylianides told reporters without giving a reason for the dramatic increase.

There has so far been no indication where the additional billions should come from.

Major funding gap

The previous agreement stipulated that Cyprus needed to raise seven billion euros to secure the 10 billion in emergency loans from its international lenders,

The Nicosia government decided on spending cuts, banking sector reform and funds taken from private bank savings accounts containing more than 100,000 euros – a move that triggered much discussion and outrage.

Where an additional six billion euros are to come from is still unclear, but there are indications that Cyprus wants to sell off its gold reserves.

A first loan payment is due early in May, as Cyprus claims to need 75 million euros urgently to cover public-sector salaries.

The troika of the European Commission, ECB and IMF has presented a report predicting a deep recession for Cyprus, with its gross domestic product (GDP) expected to shrink by about 12.5 percent over the next two years.

Eurozone drama continues

Ministers from the 17 eurozone countries who met in Dublin on Friday morning are to be joined later by their 10 non-eurozone European Union colleagues as well as European central bankers on Saturday.

Germany said clearly on Friday that the amount of the bailout for Cyprus would not rise.

"The contribution from international creditors will not change," said German government spokesman Steffen Seibert at a regular briefing in Berlin, noting that a 10-billion-euro package was "already very large."

Cyprus is the fifth eurozone country to receive a bailout and there are other problems on the agenda. The finance ministers are worried that Slovenia is next in line to demand loans and that Italy, the eurozone's third largest economy, may not be able to stay on top of its massive debt.

The spotlight is also on Portugal, where the Constitutional Court has scrapped several planned austerity measures, so the country is keen to secure a relaxation of the repayment terms of its rescue loans.

And the fallout of the latest European tax fraud scandals is likely to be felt in Dublin. There is a heated debate about combating tax havens and reporting of bank account information.

In response to pressure from Germany and other EU countries, Luxemburg has indicated its readiness to share information on EU residents with bank accounts there and other “tax havens” such as Austria are expected to be encouraged to follow suit.

rg/slk (dpa, AFP)