Less than a month after deal was agreed the bailout bill has risen to €23bn – larger than the size of the Cypriot economy
Crisis-hit Cyprus will be forced to find an extra €6bn (£5.1bn) to contribute to its own bailout under leaked updated plans for the rescue.
In total, the bill for the bailout has risen to €23bn, from an original estimate of €17bn, less than a month after the deal was agreed – and the entire extra cost will be imposed on Nicosia.
Cyprus's politicians had already faced intense domestic political pressure for agreeing to impose hefty losses on savers at two struggling banks in order to fulfil its eurozone partners' demands of contributing €7bn.
But after a more detailed "debt sustainability analysis" showed that the black hole in the island nation's finances is far deeper than first thought, the total bill for Cypriot taxpayers and depositors has now been set at €13bn. The €23bn overall bill is larger than the size of the Cypriot economy.
The document, leaked on Wednesday night, underlines the botched nature of the initial bailout agreement, which was hurriedly cobbled together in March and had to be redrawn after Europe's finance ministers rejected the idea that depositors holding less than €100,000 – whose savings are meant to be insured – would face deep losses.
Under the new plan, which is likely to spark fresh public outrage, Cyprus will be forced to sell €400m-worth of gold reserves; renegotiate the terms of a loan with Russia; and "bail-in" creditors of the Bank of Cyprus, to claw back some of the cost of the rescue.
There was also a suggestion that holders of €1bn-worth of Cypriot government bonds could be urged to agree to a debt swap, reducing the country's repayments. That could signal a messy period of negotiation and uncertainty.
Some analysts also warned that the projections for Cyprus's economy on which the bailout plans are based could prove to be over-optimistic, as has repeatedly been the case in Greece, potentially prompting a fresh bailout.
Cyprus's economy is expected to suffer a deep recession, with GDP contracting by 8.7% in 2013, and 3.9% next year. However, a government spokesman in Nicosia last week suggested the downturn this year could be far deeper, perhaps up to 13%, which could throw the bailout plans off course within months.
And Simon Derrick, chief currency strategist at BNY Mellon, questioned the idea that the economy would recover within two years, recording growth of 1.1% in 2015. "Why would confidence return and make people want to put money into Cyprus?" he said. "The economy is three things – banking, property and tourism. You're not going to rebuild an offshore banking industry in Cyprus; and in tourism it's competing against Turkey, where the currency is down 50% since mid-2005."
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