Country pledges to stick to terms of €10bn bailout after president's appeal for more help is turned down
Cyprus has pledged to stick with the terms of its €10bn (£8.6bn) bailout after EU officials signalled they would reject an appeal from the country's president, Nicos Anastasiades, for additional help.
Three months after accepting a deal with international creditors, the government in Nicosia denied reports that it had demanded an overhaul.
Cyprus claimed that Anastasiades had been trying to alert fellow leaders to the economic problems in the island republic when, last week, he wrote to them pleading for more help for its banking sector.
"There is no attempt to renegotiate the memorandum of understanding," said a spokesman. The programme co-ordinated by the International Monetary Fund, the European Central Bank and the EU includes raids on Cypriot bank accounts containing more than €100,000.
The notion of further bank aid was slapped down by EU policymakers on Wednesday. As in Greece, adjustments to the bailout could be made further down the line but only if the island stuck to the conditions of the rescue package, they said.
"There's no chance we'll revise the terms of the bailout," one official told Reuters. The official conceded, however, that the matter could be discussed when eurozone finance ministers meet in Luxembourg on Thursday ahead of next week's summit.
Despite Nicosia insisting it would implement the onerous conditions of the programme, the rejection once again raised the spectre of the island exiting the single currency. Ladbrokes cut the odds on Cyprus leaving the euro in the next 12 months to evens.
Indicative of the frustration felt by officials in Nicosia, Anastasiades described the bailout in his letter as insufficiently prepared. "Artificial measures" such as capital controls, imposed to prevent a mass outflow of money when it became clear that depositors would also be forced to endure losses as part of the bailout agreement, were eroding confidence in the banking sector by the day, he said.
"It is my humble submission that the bail-in was implemented without careful preparation," the leader wrote in his letter. "There was no clear understanding of how a bail-in was to be implemented; legal issues are being raised and major delays in completing the process are being observed." Referring to the haircut to Cypriot bank deposits, he added: "Moreover, no distinction was made between long-term deposits earning high returns and money flowing through current accounts, such as firms' working capital."
As a result, he said, businesses had suffered significant loss of working capital, driving the economy into deeper recession.
"The success of the programme approved by the Eurogroup and the troika depends upon the emergence of a strong and viable Bank of Cyprus. It is for this reason that I urge you to support a long-term solution to Bank of Cyprus's thin liquidity position."
In a first for a eurozone member state, the island accepted to enforce steep losses on large, uninsured deposit holders at its two biggest banks, Cyprus Popular Bank PCL – also known as Laiki – and the Bank of Cyprus. In exchange for €10bn in rescue loans from the EU and IMF, it also agreed to press ahead with €13bn worth of measures to cut its deficit in addition to winding down Laiki.
Anastasiades said Cyprus had been made to pay an excessive price for the restructuring of Greece's own debt to which Cypriot banks had been heavily exposed.
"The heavy burden placed on Cyprus by the restructuring of Greek debt was not taken into consideration when it was Cyprus' turn to seek help," he wrote. "At this crucial juncture, we are calling upon you for active and tangible support."
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