A request from Cyprus for moderations to its
international bailout is not an effort to change the terms, but a
request for help needed to keep its economy and the country's largest
lender solvent, a senior Cypriot diplomat said on Wednesday.
"Cyprus is not asking the eurozone to change the terms of the bailout, but what it desperately needs is for a solution to be found to help keep its economy and the Bank of Cyprus solvent," a senior diplomat told dpa.
Cyprus secured a 10-billion-euro bailout in emergency loans from international lenders in April to avoid bankruptcy. The deal involved a haircut, which was unprecedented for the eurozone, and imposed heavy losses on uninsured deposits of more than 100,000 euros (133,000 dollars) in the largest lender Bank of Cyprus, while winding up the island's second-largest bank, Laiki.
"The government has not requested changing the terms of the bailout - rather it is asking for some specific changes in terms of practical issues, such as happened in the case with other countries, such as Ireland," said government spokesman Christos Stylianides, referring to a recent letter sent by Cypriot President Nicos Anastasidea to eurozone partners.
"What we are asking is for some individual modifications to the deal to be made."
In the letter, which was made public by the Financial Times on Tuesday, Anastasiades said: "It is my humble submission that the bail-in was implemented without careful preparation."
"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."
"No distinction was made between long-term deposits earning high returns and money flowing through current accounts, such as firms' working capital."
"This amounted to a significant loss of working capital for businesses ... an alternative, longer term downsizing of the banking system away from publicity and without bank runs was a credible alternative that would not have produced such a deep recession and loss of confidence in the banking system," the letter said.
Anastasiades said that capital controls, which have still not been fully lifted three months after they were imposed to prevent a run on banks, were "seriously hampering the conduct of business."
"Artificial measures such as capital restrictions may seem to prevent a bank run in the short term, but will only aggravate the depositors the longer they persist."
"Rather than creating confidence in the banking system they are eroding it by the day."
In his letter, the Cypriot president pleaded for help in safeguarding the Bank of Cyprus, saying that it was now saddled with liabilities that threaten its role as the island's key lender.
He said that the Bank of Cyprus taking on liabilities that include 9 billion euros in so-called emergency liquidity assistance (ELA) from Laiki "has substantially increased the vulnerability of its own funding structure, with its cumulative ELA liability reaching a very high 11 billion euros."
"I stress the systemic importance of the Bank of Cyprus, not only in terms of the banking system but also for the entire economy," Anastasiades said.
"The success of the programme approved by the Eurogroup and the troika depends upon the emergence of a strong viable Bank of Cyprus," he said.
Simon O'Connor, a spokesman for EU Economy Commissioner Olli Rehn, said eurozone finance ministers will discuss the letter at a meeting in Luxembourg on Thursday.
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