Cyprus urges fair eurozone debt-sharing

2012-07-06 15:59

Nicosia - Financially troubled Cyprus, which this week took over the EU helm, complained on Friday of falling "unfairly" foul to Europe's debt crisis and urged eurozone nations to share debt according to size.

Speaking days after applying for an EU-IMF bailout, Finance Minister Vassos Shiarly complained that his tiny island nation went into the red only after paying "a very heavy price" to enable Greece to write off more than 100 billion euros of debt owed to private banks.

The March "haircut" deal, known as private sector involvement (PSI), was negotiated in months of talks among private, public and global players to slice around 50% off monies owed by Greece to the banks, to lighten its crippling debt.

Because Cypriot banks held massive amounts, Cyprus lost €4.2bn euros, amounting to 24% of its gross national product, Shiarly said.

"This was not a fair way to deal with it," the minister told a news conference held as the country takes the six-month rotating presidency of the European Union.

"It was a European problem," he added. "I believe we should have shared that loss fairly on a level playing field."

Given that Cyprus accounts for 0.2% of the total economies of the 17 nations sharing the euro, the country would have lost only 200 million euros under a fair share-out, amounting to "petty cash," he said.

The minister said he would likely raise this issue in talks to negotiate an EU-IMF loan for the country.

Shiarly refused to put a figure on a rescue being sought by Cyprus from the eurozone bailout fund until the completion of an inquiry in Cyprus by the "men-in-black" inspectors of the European Commission, European Central Bank and International Monetary Fund.

He denied that Cyprus had officially asked for loans from Russia or China but confirmed it had been in contact and said: "If and when it comes we will discuss it with our parTners in Europe and deal with it then."

President Demetris Christofias said this week that the country was looking at loans both from Russia and the eurozone to see it through tight times.

He also suggested that a loan from Moscow was likely to come with far more favourable conditions than any rescues agreed by the EU and IMF, which come with assorted demands for economic change and reform.

The finance minister brushed aside worries that the troika could demand Cyprus increase its attractively low 10 percent corporate tax to levels practised in other eurozone nations, in exchange for a loan.

Recalling that Ireland, one of four other eurozone nations to call for a rescue, had managed to maintain its corporate tax rate at 12.5 percent, Shiarly said "I'm very confident that no such requirement or conditionality will be raised."

He also voiced confidence that the troika would take into account Cyprus's huge PSI loss and denied that it faced a short-term cash crunch, saying it could refinance short-term treasury bills using local funds.

Asked who might be the next victim of Europe's debt crisis, which has claimed Greece, Portugal, Ireland, Spain and Cyprus, Shiarly said "there should be no stigma" attached to asking for help from the eurozone's bailout funds, the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM).

"One should not demonise an application," he said. "Specially not to a fund like the ESM or EFSF, which is a fund to which all countries contribute."