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TheStreet Open House

Cyprus Rushes Adoption Of Austerity Measures

By MENELAOS HADJICOSTIS

NICOSIA, Cyprus (AP) â¿¿ Cyprus' finance minister urged lawmakers Friday to approve a first batch of spending cuts and tax hikes agreed with international creditors by Dec. 13, when the other 16 EU countries that use the euro are expected to discuss a bailout deal.

Vassos Shiarly said the only element left to determine in the bailout accord with the 'troika' of the European Commission, the European Central Bank and the International Monetary Fund is how much cash troubled Cypriot banks need. The banks need to replenish their reserves after taking huge losses of around ⿬4.5 billion ($5.84 billion) on bad Greek debt and loans.

Shiarly said that investment firm PIMCO and auditors Deloitte, which are currently assessing banks' needs, will issue a preliminary figure on Dec. 7, while the formal sum will be known by mid-January.

"As a result, you understand that there is an outstanding issue that will remain for some time until the final figure is issued. However, this doesn't stop us from completing the memorandum (bailout) to the greatest possible degree," Shiarly said.

Cyprus' Central Bank Governor Panicos Demetriades said Friday that amount won't exceed ⿬10 billion ($12.99 billion). A leaked draft of the bailout accord said that "up to ⿬10 billion is foreseen" for Cypriot banks which includes "potential future capital needs."

Cypriot officials, speaking on condition of anonymity because of the sensitivity of the issue, say that they believe the banks' recapitalization needs to be much lower, closer to ⿬7 billion ($9 billion).

The size of the bailout for the crisis-stricken country is estimated at between ⿬14.5-17.5 billion ($18.8-22.7 billion) which includes 7.5 billion to cover the country's financing needs and fiscal shortfalls over the agreement's four-year duration between 2013-16.

Cyprus, with a total economic output of ⿬17.5 billion ($22.7 billion), sought international aid in June to save its teetering banks and to pay its bills after being shut out of international markets for a year because of its junk credit rating. The country will see its economy shrink this year by 2.4 percent of GDP and 3.5 percent in 2013. Unemployment will peak at over 14 percent in 2014 before it starts to recede, the finance ministry said.

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