24 February 2013

FT: Cyprus victor vows to finalise bailout

Mr Anastasiades, who captured 57.5 per cent of the vote in a run-off against communist rival Mr Malas, said he believed Cyprus posed a systemic risk for the eurozone and would need agreement in a matter of weeks to shore up its banking sector and prevent the government from running out of cash.

The leader of Cyprus’s centre-right party vowed to resume talks quickly with international bailout lenders and finalise a €17 billion rescue by the end of March, as he swept to an overwhelming victory in the island’s presidential election. Mr Anastasiades’ victory was a relief to most EU leaders, including Germany’s Angela Merkel, who had grown exasperated with outgoing president Demetris Christofias, a communist who failed to secure a deal for more than a year and repeatedly flirted with Moscow as an alternative to an EU and International Monetary Fund bailout.

While eurozone officials believe Mr Anastasiades will take a more pragmatic approach, some have raised concerns that he too appears reluctant to take the sort of drastic action needed to return the country to fiscal health. Mr Anastasiades signalled he was not prepared to accede to some of the demands made by international lenders, particularly sweeping privatisations, which some in Brussels believe can raise as much as €2 billion.

Cyprus’s bailout has become increasingly tendentious within the international community, with questions over whether some of the demands made by the IMF and northern eurozone countries could reignite uncertainty in financial markets.

A €17 billion rescue would raise Cyprus’ sovereign debt levels to about 145 per cent of its economic output, levels the IMF and its EU allies believe are unsustainable. As a result, creditors have been looking for ways to shrink its size by radically restructuring the country’s banking system, potentially by forcing losses on large deposit holders.

European Commission officials have warned that any attempt to “bail in” Cypriot depositors – a route not taken in any previous bailout – could lead depositors in other eurozone banks quickly to withdraw their money. Mr Anastasiades said a haircut of large depositors would be “catastrophic” for Cyprus, and could have a contagion effect on other eurozone countries, adding that Olli Rehn, the EU economic affairs chief, shared his view.

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