It must be depressing being a European finance minister. They must dread their monthly meetings in Brussels, wondering whether they will have to hand over any more cash to debt ridden nations. After all of their talk about saving the Euro the region continues to slip further into recession, unemployment continues to soar and more member nations go cap in hand asking for bailouts. This time it is the turn of Cyprus to get said handout.
The debt ridden island requested a bailout back in June 2012 but it was not possible for the EU to make an agreement with the former communist-led government due to possible dodgy dealings with Russian criminals. However, now that the Cypriots have elected a conservative government, negotiations are well under way after Finance ministers pledged to agree to a bailout.
President Nicos Anastasiades promised on the 28th of January to work for a swift deal to prop up the island’s banks, which need capital of €8-10 billion. The total bailout, including financing for general government operations and to finance existing debt, could be up to €17 billion, equal to Cyprus’s annual economic output.
Two Eurozone officials said ministers meeting in Brussels did not agree on how best to finance the bailout, but were committed to a deal by the end of March.
“The Euro group called on the international institutions and Cyprus to accelerate their work on the building blocks of a program, and agreed to target political endorsement of the program around the second half of March,” the ministers said in a statement.
Germany had been opposed to a bailout due to concerns over money laundering in the country but the new Cypriot authorities have agreed to an independent review of how its banks are implementing anti-money laundering laws.
German officials, backed by the Netherlands and Finland, have pushed for depositors in Cypriot banks, many of whom are Russian and British business people, to help pay for the cost of the rescue, a process known as a “bail-in”.
But Cyprus fears any “bail-in” will spark the rapid withdrawal of funds from the island and undermine its entire business model, making the economic situation even worse.
Cyprus’s newly appointed finance minister, Michael Sarris, called the bail-in idea a bad proposal.
“Really and categorically – and this doesn’t only apply in the case of Cyprus but for the world over and the Eurozone – there really couldn’t be a more stupid idea,” Sarris, a widely respected economist, told reporters last week. The Eurozone do seem full of those.
Current Euro exchange rates
As of 11:15 am
The Euro to Pound Sterling exchange rate is currently trading in the region of 0.8598
The Euro to US Dollar exchange rate is currently trading in the region of 1.3027
The Euro to Australian Dollar exchange rate is currently trading in the region of 1.2749
The Euro to New Zealand Dollar exchange rate is currently trading in the region of 1.5777