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Christine Lagarde is currently unwilling to discuss giving aid money to ailing eurozone member Cyprus. For some time now, the Americans in particular have been eyeing the IMF's involvement in Europe with suspicion, causing the Frenchwoman to hit the brakes time and again. "I have no mandate for that", is a statement that the eurozone finance ministers have heard only too often from Lagarde.
The IMF believes that the sovereign debt level of Cyprus is unsustainable over the long term. The IMF is insisting that Cyprus be required to adhere to much stricter measures than those being called for by the Europeans. It is a similar debate to the one which nearly caused a rift between the IMF and the EU during negotiations over the Greek bailout. The IMF is demanding that the ESM step in to save Cypriot banks. Such a scenario would mean that Cyprus would no longer be solely responsible for paying back the €10.8 billion that has been earmarked for the country's banks. Instead, the European bailout fund would have to share the risk. This would make it possible to put a more positive spin on Cyprus' debt sustainability figures. But Germany, along with the Netherlands and Finland, aims to prevent this. German Finance Minister Wolfgang Schäuble says that a direct bank recapitalisation by the ESM would only be possible from March 2014, at the earliest, once a European banking regulatory agency has been established.
The second IMF demand is for the creditors of Cypriot banks to forego a portion of their claims -- a debt haircut in other words. Europe is not unsympathetic to such a move, but would prefer to involve only so-called junior debt-holders -- denoting those whose debt is prioritised lower in the event of an insolvency.
Another issue has also caused an air of mistrust to creep in between the IMF and a number of Member States. Germany, Austria, Finland and the Netherlands don't trust the findings reached by a team of IMF experts last autumn with regard to Cypriot money laundering activities.