Cyprus: A bailout, quick!
13 June 2012
It's been in the air for weeks — Nicosia is preparing to apply for €3bn to €4bn in emergency funding from the EU in order to recapitalise its struggling banks, highly exposed to Greek debt. But time is running out, writes the English-language Cyprus Mail.
Now that we are no longer in denial about the possibility of applying for an EU bailout, we should perhaps give some thought to the timing which could prove of critical importance. As we have accepted that we will take the plunge, the sooner the better, even if this goes against the government’s philosophy of leaving every important decision to the last minute.
Ideally, we should have applied at the same time as Spain, as we would have been treated in a similar way. We would still have had to take measures – probably be told to cut the public sector payroll – but at least everything would have been done in a controlled and measured way.
Having missed this opportunity, the government needed to apply before Sunday’s parliamentary elections in Greece, after which the euro-zone could be thrown into chaos, as a victory for the anti bailout leftists of SYRIZA would raise the prospect of a Greek exit from the euro and wreak havoc in the markets. It is a possibility nobody can rule out as opinion polls show the contest between SYRIZA and the pro-bailout New Democracy party to be too close to call.
Government bonds have junk status
So what is the government waiting for? Everyone knows that the Laiki Bank share issue which the government has under-written will not raise anywhere near the €1.8 billion needed for the bank’s re-capitalisation. We also know that the bonds the government issued are not considered acceptable by the ECB for re-capitalisation purposes (inevitable when a government’s bonds have junk status) which means the application for a bailout by the end of the month is a certainty.
Does the government seriously believe it will secure a loan from another country before the end of the month and avoid the support mechanism, as the spokesman has been suggesting? Surely it should have given up the hope of landing a loan from another government by now and started preparing for entry into the support mechanism by finalising the package of measures it would take. It would also be spared the embarrassment of negotiating bailout terms when it assumes the EU presidency on July 1.
Reports from Brussels suggest the government has already informed the Commission of its intention to enter the support mechanism, but it was unclear when the application would be filed. We hope, for once the government will show a sense of urgency and it would be sooner rather than later.