Euro zone finance ministers close to agreeing bailout for Cyprus

Euro zone finance ministers last night said they were close to agreeing a bailout for Cyprus, although details of whether a rescue package would affect depositors is still unclear.

Speaking after a meeting of euro zone finance ministers, which was attended by Cyprus’s new finance minister Michalis Sarris, euro group chairman Jeroen Dijsselbloem said he expected a deal would be agreed this month as expected.

“[There is] ambition and willingness to work with other colleagues in the euro zone on a solution. I hope that as soon as possible, the troika can travel to Nicosia and seriously start the talks.”

Cyprus was the fifth euro zone country to seek a bailout, when a €17.5 billion rescue plan was sought last year. However, concern about the country’s commitments to fiscal reform, and suspicions about money-laundering, led to a delay in the implementation of a deal.

Its previous government resisted demands by its bailout partners that the country embark on a significant privatisation process.

Money-laundering

European economics and monetary affairs commissioner Olli Rehn said last night that the Cypriot government had agreed to a euro zone audit to assess the situation as regards money-laundering, one of the conditions for the bailout.

While details of how the audit would be administered were not disclosed, it is seen as a key condition of a Cypriot bailout. The euro group previously indicated that a private sector firm would administer the audit.

Euro zone officials declined to comment on reports that the bailout could include the imposition of haircuts on senior bondholders or classes of depositors, a condition that is favoured by some lenders. Cyprus’s newly elected finance minister warned that Cypriot banks were being hit by substantial outflows of deposits, amid speculation that forced losses could be on the cards.

Cypriot voters went to the polls last month, in a much-anticipated election.

Election victory

Centre-right conservative leader Nicos Anastasiades won the presidential election with over 57 per cent of the vote, vowing to work with EU partners on the terms of the long-delayed bailout. The bailout discussions are now in their eight month.

Meanwhile, British chancellor George Osborne faces his European counterparts today for the first time since last week’s EU decision to curb bank bonuses. Finance ministers from all 27 member states meet in Brussels today.

While a proposal to lengthen the maturity of Irish and Portuguese bailout loans will be presented to EU finance ministers at a breakfast meeting, much of the discussion is expected to focus on the capital requirements directive, which was agreed last week.

Also today, Latvia is expected to hand the European Union its formal application to join the euro zone in a move the country’s leaders say marks its escape from crippling recession and biting austerity and puts it on the road towards sustainable prosperity. The assessment will be carried out by the EU Commission and ECB.