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Cypriot report
by Euro Reporter
2012-06-21 10:23:45
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Cyprus warns deadline is near for bank rescue

Cyprus's finance minister warned that the clock is ticking for the island to secure funding to recapitalize its second-biggest bank, a move that could make it the fifth euro-zone country to turn to Europe for a multibillion-euro bailout. "I calculated that there's 278 hours left until June 30," the date, by which Cyprus Popular Bank has to be recapitalized, Cypriot Finance Minister Vassos Shiarly said on Tuesday. "We're counting the hours."  Cyprus Popular Bank took heavy losses on its holdings of Greek debt in a mammoth debt restructuring earlier this year, and now needs an estimated €1.8 billion ($2.26 billion) to be restored to health. Mr. Shiarly said he remained optimistic that the funding would be secured in time "either through a bilateral agreement or through Europe."

The Cypriot government has been in negotiations with Russia for a direct loan, while at the same time considering a request for a bailout from one of Europe's rescue funds, either the temporary European Financial Stability Facility or its soon-to-be-operational successor, the European Stability Mechanism. Cyprus has also signalled it might tap both. A euro-zone bailout would come with a set of policy conditions and close euro-zone oversight, the kind that has drawn the ire of citizens in Greece, Ireland and Portugal—three other euro-zone countries already receiving bailouts. Russia—which has deep and longstanding ties with Cyprus—would demand no such supervision but might seek other concessions instead. Late last year, it extended a loan of €2.5 billion to the island. A Cypriot Finance Ministry official said the European Commission, the European Union's executive arm, was exerting pressure on Cyprus to request a bailout for its entire economy rather than just its financial sector. He said the commission had ruled out a "bailout-limited" package, like the one Spain recently secured, which would provide Cyprus sufficient funding only to backstop its banks. Instead, the official said, the commission was pushing for a much bigger aid package that could also cover the Cypriot government's fiscal needs.

A commission spokesman said that wasn't the case. "We are not putting pressure on Cyprus," Amadeu Altafaj Tardio, the spokesman for EU Economics Commissioner Olli Rehn, said on Tuesday. "Still, the situation is difficult and we are aware of the pressures that exist on the [Cypriot] financial sector with its exposure to Greece," Mr. Altafaj Tardio said. Cyprus has yet to formally request a euro-zone bailout, both Mr. Shiarly and Mr. Altafaj Tardio said, but the issue would likely be discussed at a finance ministers' meeting in Luxembourg on Thursday. Cyprus's tiny economy will get less attention at the meeting than Greece, which is set to float proposals for a renegotiation of the terms of its own bailout, and Spain, which has found itself in the markets' firing line despite securing €100 billion in euro-zone aid for its banks. "With Greece and Spain on the table, Cyprus won't really get that much time," an EU official said, adding that "there's only 12 days left to sort this out and the Cypriots will have to make up their mind: Will they go for the Russian loan or the euro-zone one?"

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Cyprus Looks in Both Directions for Support

From the sharp-suited 'biznesmeny' in their black BMWs, to the grocery selling imported vodka and whole smoked whitefish, to its Soviet-educated Communist president, the Mediterranean island of Cyprus speaks with an unmistakable Russian accent. And as the latest troubled EU nation hurtles towards a seemingly inevitable financial rescue, it finds itself teetering between Moscow and Brussels. "They have to decide whether they want to be part of the European Union — or of the Soviet Union," said Fiona Mullen, economist at Sapienta, a consultancy. Cyprus took a 2.5 billion euro ($3.15 billion) loan from Russia last year. It now urgently needs at least 1.8 billion Euros by the end of this month to rescue its banking sector, torpedoed by its exposure to its bigger brother, Greece. The actual bill is likely to be several times as high, and if Greece were to exit the euro zone it could run into double digits, a huge sum for a country with barely a million people.

Many in Cyprus think the only place where the country could find that kind of cash would be Moscow. Especially if President Demetris Christofias — the EU's only Communist leader and a fluent Russian speaker from his Moscow university days — wants to avoid the tight conditions that Brussels normally attaches to its rescue funds. Before seeking assistance from the euro area, which would come with strict conditions, Cyprus is approaching countries including Russia for loans, government spokesman Stefanos Stefanou said this week, declining to elaborate. The Cypriot newspaper Alithia reported on June 12 that Cyprus was asking Russia for 5 billion Euros. The Politis daily said three days later that Cypriot President Demetris Christofias was leading the loan talks. The Russian Finance Ministry's press office didn't immediately reply to e-mailed questions about the reports. Pavel Medvedev, an adviser to Central Bank Chairman Sergei Ignatyev, said he "wouldn't be surprised" if Russia extended a second loan to Cyprus in as many years.

President Vladimir Putin "recently spoke about the euro countries in very kind terms," Medvedev said. "If a loan is given, it won't be the kind of assistance that will be an economic turning-point, but psychologically it will be extremely important." The question is: What would Russia get in return? And how would that effect relations with the rest of the European Union? If Cyprus, which assumes the EU's rotating presidency on July 1, becomes so deeply in hock to Moscow, it would be an enormous embarrassment, both to Brussels and to many in Cyprus who see its long term future with the West, not the East. "You don't want to have all of your money owed to one country," said Mullen. "Two thirds of your GDP is owed to Mr. Putin? That's something that even worries Russian businesses here, who worry that if Cyprus falls out with Russia they will have to do what Moscow says." Still, others say Russian funding would be easier for Nicosia to accept than funding from Brussels, which would require Christofias to make budget cuts that would hurt the economy and enrage voters before an election next February. It isn't hard to find reasons why Moscow would be willing to be generous and more lenient with its terms than Brussels. Although the debt would be huge, in the long term, loans to Cyprus are probably a safe bet. Despite its dire cash flow problems now, Cyprus expects to see a windfall of wealth in the next decade, following the discovery of giant natural gas fields offshore in the eastern Mediterranean. Russian firms are among the bidders for gas concessions in coming months.

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Cyprus government accused of mistreating migrants

A new report from the human rights group Amnesty International claims that hundreds of migrants fleeing persecution and conflict who arrive in Cyprus are locked up by authorities in violation of international law.  The report says the government in Nicosia is responsible for holding hundreds of migrants and asylum seekers for months and even years in poor conditions, without adequate medical care or access to free legal aid, in violation of their basic rights.  Jezerca Tigani, Europe and Central Asia Deputy Program Director at Amnesty International, told the Voice of America that Cyprus should urgently review its laws governing the detention of migrants to make sure they conform to policies elsewhere in the European Union.  "Detention is being used in Cyprus as a tool to regulate migration, which means the Cypriot authorities are violating international and European law when they detain illegal migrants without examining any alternative measures, or without demonstrating that their detention is indeed necessary," said Tigani.

The Amnesty report comes just as Cyprus is set to assume the rotating presidency of the Council of the European Union in July. Amnesty also claims that several dozen Syrians are being treated like criminals and held at detention centres, including some who claim to be escaping the bloodshed in their home country. Tigani says the Syrians should not be in detention.  "Many Syrians were being detained for months and months in the detention centres although there was an order by Cypriot authorities not to deport any Syrians back to Syria because of the situation in the country," said Tigani. "It is just shocking to see why the Syrians were being detained when actually they are not to be deported back to Syria in the current situation. Unfortunately, even the authorities do not understand that the detention should only be linked to the deportation." Doros Polycarpou from the immigrant support group KISA said he too is perplexed as to why the Syrians are still in detention. "This is an un-understandable, a completely un-understandable situation," said Doros. "There is a violation of international law and refugee law itself."

Last week, Tigani visited some of those detained at Nicosia's main prison. She says the prison, which is over 130 years-old, is hot, overcrowded and filthy with migrants being held together with convicted criminals. "The detention conditions are really awful and very overcrowded - many people are in the same cells, the smells are absolutely terrible inside the cells and the detainees have no access to fresh air outside or to exercise, you can see how the detention in these kind of conditions has a very bad [effect]," said Tigani. "It affects the detainees, it affects their mental health, but also their physical health and they have very little access, if all to any doctors." In response to the allegations, the Cypriot Government EU Presidency Spokesman Nicos Christdoulides says that Cyprus welcomed the Amnesty report as an opportunity that will allow for “fruitful consultations.” But he stressed that Cyprus is adhering to its international obligations. "In the case where an asylum seeker is detained, the examination of his application is prioritized while it is ensured that he has full access to his rights, provided for by the refugee law," said Christdoulides. Christdoulides says the government will soon open a new detention facility designed especially for migrants and asylum seekers.  "To solve the problem the government of Cyprus has already set up a new detention facility, which is expected to operate soon and which is designed only for immigration purposes," said Christdoulides. Amnesty International says however it has not seen any substantial improvement in the treatment of asylum seekers by Greek Cypriot authorities, despite repeated calls for conditions to change over the past decade.


 
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