Local
articles | 03 March 2015

Eurogroup decision to change use of bailout funds welcome

Finance Minister Harris Georgiades said he would welcome a decision by euro area finance ministers to divert funds earmarked to recapitalise banks to the refinancing of existing debt.

“This would interest us as this wouldn’t increase public debt, and would facilitate managing existing debt,” Georgiades said in a telephone interview yesterday. “But our concern at this moment is to see the resumption of our programme and everything must come in its time. We would like to discuss this but it is not up to Cyprus or the troika to decide, it is up to the Eurogroup”.

The Finance Minister was referring to Cyprus’ economic and financial reform programme agreed with international creditors in March 2013, as part of a €10 billion bailout. Cyprus’ international creditors stopped financing and the evaluation of the programme in response to a December 18 vote suspending the enactment of an unpopular foreclosure law by Parliament citing the government’s delay in submitting the draft legislation on insolvencies.

Lawmakers extended the suspension of the foreclosure law, part of Cyprus’ bailout terms, initially until March 2, and then until March 19, again angering the troika of the European Commission, the European Central Bank and the International Monetary Fund.

The government has already submitted four out of the five bills and is expected to finalise the fifth within the “next few days,” Georgiades said. “There is currently a political deadlock, which we want to overcome, to have our financing restored both from the European Stability Mechanism and the IMF as well as from markets”.

Cyprus is forecast to generate a primary surplus this year, after posting a marginal fiscal surplus in 2014. Almost a year before the financing period of Cyprus’ programme expires, the government, which is facing €2 billion in debt maturities this year excluding the €1.1 billion outstanding bond part of the security issued to recapitalise Cyprus Popular Bank in 2012, which can be rolled-over until 2017, already received €6.1 billion in bailout funds. Following the successful completion of the ECB’s asset quality review in October, a €1 billion amount earmarked for the recapitalisation of the banking system remains unutilised.

The finance minister said that the resumption of the programmewould also allow Cyprus to benefit from the ECB’s quantitative easing as its €1.1 trillion expanded asset purchase programme announced in January is also called.

“This ECB tool is of particular importance for a country like Cyprus and we are therefore interested to see it activated,” he said.

He added that since Cyprus’ government bonds don’t meet the investment grade criterion, required by the ECB’s in order to include its securities in its asset purchase programme, it is necessary for Cyprus to resume its reform programme agreed with creditors, which is the ECB’s other alternative criterion.

Source: Cyprus Mail

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