For more recent reporting on Cyprus’ troubles, see: http://www.neurope.eu/article/cyprus-seeks-help-creditors
Meeting in advance of the EU-wide meeting of ECOFIN tomorrow, the finance ministers of the 17 Eurozone members are today discussing the on-going economic crisis in Cyprus.
The island nation was granted a 13 billion euro bailout in April by the EU and IMF, but under harsh conditions that require a serious reform of the nation’s banking sector, which was hit hard by the Greek sovereign debt crisis. Under the terms of the deal, Cyprus must close its second largest bank, Laiki, and overhaul the Bank of Cyprus. Those two insititutions combined account for about 80% of the Cypriot banking sector. Additionally, a heavy tax is to be levied against any bank account containing more than 100,000 euros.
As one might expect, these conditions have been met with sharp disapproval in Cyprus. Last week Cypriot president Nicos Anastasiades sent a letter to the lending troika imploring them to reconsider the terms of the bailout deal, stating that it was implemented “without careful consideration” and that its effects on the Cypriot economy had been much more severe than was expected.
While they do plan to discuss the letter at their meeting in Luxembourg today, the Eurogroup ministers are not expected to modify the terms of the deal. For its part, officials in the Cypriot government have said that while they do not approve of the current plan, they will do what is necessary to fulfil the terms of the agreement.
Speaking to the Wall Street Journal, a senior Cypriot official said “We will do everything that's asked, and then some, both on fiscal spending cuts and on the Bank of Cyprus overhaul, that way there will be no doubt that the problem is in the Eurogroup decision and the [memorandum], not us, and the ball will be in their court."
The measures that accompany the bailout are expected to drive Cyprus into a deep recession. A report from the IMF issued last month predicted that the Cypriot economy would shrink by 9% this year and continue declining into 2014.
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