Monday, 25 February 2013

CYPRUS: '' Nicos Anastasiades'': The New President and the ''bailout'' dilemma

Cypriot voters clearly expressed their preference for a euro-zone bailout of their financially struggling nation on Sunday, electing the conservative Nicos Anastasiades to be the country's next president. Conservative candidate Nicos Anastasiades soundly defeated his leftist rival Stavros Malas, garnering 57.5 percent of the vote to Malas' 42.5 percent. The cornerstone of Anastasiades' campaign was a pledge to quickly reach a deal with Cyprus' euro-zone partners on a badly-needed bailout. He will be sworn in on Thursday.

"We will be absolutely consistent and meet our promises," he said in his victory speech on Sunday. "We will restore the credibility of Cyprus in Europe and internationally, I promise you."
Nicos Anastasiades's victory, a ''Pro-European'', could speed up Cyprus's bailout negotiations with the troika, comprised of the European Union, the European Central Bank and the IMF.

Cypriot finances are in bad shape, with the country needing up to €17.5 billion to ward off insolvency and to prop up its ailing banking industry. The amount is roughly equal to the country's annual gross domestic product, which would make it by that measure the largest euro-zone bailout yet undertaken.

The most radical option would be to directly tap money that has been deposited in the country's bank accounts, including that of wealthy Russians. But officials at the European Commission in Brussels are divided over the suggestion of a so-called "bail-in," with many viewing it skeptically. Some are concerned the dramatic step could shake financial-market trust in the euro zone and drive investors away from crisis-plagued countries.

The countries that would provide the bailout are concerned it will create another problem. In the event of an aid package totalling €17.5 billion, the Cypriot deficit would rise to 140 percent of gross domestic product, well above the 120 percent that is considered serviceable. This has prompted the International Monetary Fund (IMF) to push for participation by owners and creditors of the banks in order to reduce the size of the total bailout. But this option could also open the door to legal disputes in the countries whose depositors are affected.

The sources in Brussels said that the euro-zone also has to take into consideration the financial stability of the currency area. One possible way of addressing a bail-in could also be to ensure that the deposits of Cypriots would not be touched -- and that only those of foreign depositors would be part of the debt haircut. Although that would address concerns about Russian money laundering, it could also provoke Moscow at a time when the euro-zone members are encouraging Russia to participate in the Cyprus bailout.

Money laundering is also thought to be a major problem, and it is believed that Russians have deposited billions in assets on the island from dubious sources.

Furthermore, there are deep concerns in the euro zone, that a bailout would ultimately help the rich Russians who have parked their money in Cypriot accounts -- in addition to worries that the Mediterranean country isn't doing enough to combat money laundering.

The country has essentially been cut off from international capital markets for the last two years and the current interest rate on its 10-year bonds -- despite being an 18-month low -- is an unsustainable 9.96 percent. In recent months, the government has been forced to borrow heavily from the pension funds of state-owned companies. Its banking industry is in a shambles as well, having been hit hard by write-downs of Greek debt on their books.

But in contrast to the previous government -- which had turned to Russia for possible bailout aid before approaching Europe -- Anastasiades is an avowed pro-European. "Cyprus belongs to Europe," he said on Sunday. "We want Europe on our side." He also promised to "take all of the necessary measures to lead Cyprus out of the financial crisis."

By Guylain Gustave Moke
Political Analyst/Writer
Investigative Journalist

Photo-Credit: Wikip├ędia: Cyprus' President: Nicos Anastasiades