Euro zone ministers 'close to agreeing' bailout for Cyprus

Euro zone finance ministers said tonight said they were close to agreeing a bailout for Cyprus, but 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’ new finance minister Michalis Sarris, euro group chairman Jeroen Dijsselbloem, said that 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.

European economics and monetary affairs commissioner, Olli Rehn said tonight that the Cypriot government had agreed to a euro zone audit to assess the situation as regards money-laundering in the country, 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’ 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.

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 tomorrow for the first time since last week’s European Union decision to curb bank bonuses. Finance ministers from all 27 member states meet in Brussels tomorrow.

While a proposal to lengthen the maturity of Irish and Portuguese bailout loans will be presented to European Union finance ministers at a breakfast meeting, much of the discussion is expected to focus on the Capital Requirements Directive which was agreed last week.

The Irish-brokered deal paved the way for wide-ranging reforms in the European Union and the implementation of international rules, but also included a controversial clause on capping bankers’ bonuses at 100 per cent of salary, which would be raised to 200 per cent in certain circumstances.

Britain is expected to have little room to overturn the deal, though there is potential for some small adjustments before a final text is agreed. One source close to the discussion said that any vote on the deal would be some months away, as technical discussions would now take place over the coming months.

Some member states are also concerned about the proposal that will force banks to disclose their profit figures by country, though any disputes are expected to be ironed out in the discussions.