Finance ministers of the 17 euro-zone states gathered in Brussels for an emergency meeting this evening to finalise details of a bailout for Cyprus, amid signs that the final cost of the bailout could be as low as €10 billion.
Speaking on his way into the meeting, which was also attended by International Monetary Fund chief Christine Lagarde, Minister for Finance Michael Noonan said he expected the elements of the agreement to be in place late tonight, though a final sign-off was not expected.
"It has to cover both sovereign and banks and it has to be a complete package," he said, adding there was an "urgency" about Cyprus. "All the constituent parts of Eu rope, whether small or big, are equally important in the euro zone."
The question of Cyprus’s possible impact on the rest of the euro zone has emerged as a key point of debate in discussions on the size and scope of its bailout.
While the Europe an Central Bank has warned of the potential impact the bailout could have on the rest of the euro zone, some member states, including Germany, have downplayed the possible contagion effect, arguing that any arrangement for Cypriot banks would have minimal effects on euro zone stability. Concern about contagion was a key reason behind Europe's decision not to permit Ireland to impose losses on senior bank bondholders in Anglo Irish Bank as part of the Irish bailout.
Mr Noonan said ministers had yet to be briefed on the latest details of the Cypriot bailout which may impose write-downs on senior bank bondholders and depositors, although a tax on depositors was also being mooted, along with an increase in corporation tax.
Asked whether any change to Cyprus’s corporate tax rate could have implications for Ireland, Mr Noonan said the “lower end of the spectrum for European corporate tax rates is settling at around 12½ per cent. “Under the treaties, the fixing of tax rate . . . is a matter for sovereign government, so we stand by the treaty. We don’t think it will affect us.”
A bailout for Cyprus was first sought last June, after banks were badly impacted by the Greek debt write-down.
Final agreement has been delayed for months amid concern about Russia n money-laundering in the country, and frustration with Cyprus's commitment to economic reform.
Troika officials have been thrashing out the final details over the past few days in Nicosia, with the headline number expected to come in as low as €10 billion, compared to the original estimate of €17 billion.
There are suggestions that Russia may contribute to the bailout, either through extension of a €2.5 billion loan or a reduction in interest rates, with the Cypriot finance minster planning to travel to Moscow on Monday. The extent of IMF involvement was also under discussion tonight.
