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Cyprus bailout: Eurozone finance ministers discuss crisis

Cyprus bailout: Eurozone finance ministers discuss crisis


Eurozone finance ministers meet on Friday to finalise a bailout for Cyprus amid news that the country needs much more money than first thought.

The meeting in Dublin will review how Cyprus can raise its contribution to the bailout being put together by the European Union and IMF.

The cost of the rescue has risen to 23bn euros ($30bn; £19.5bn) from 17.5bn euros, according to Cyprus' creditors.

Meanwhile, Cyprus has loosened the capital controls it imposed last month.

In order to secure 10bn euros from the EU and International Monetary Fund (IMF), Cyprus will have to find the remaining 13bn euros, about 6bn euros more than previously thought.

The finance minister of Luxembourg, Luc Frieden, said on Friday that Europe and the IMF could not increase their 10bn euro share of the bailout.

"I believe the policy will be that the volume will remain at 10bn [euros]," he told a German radio station.

Late on Thursday, a Cypriot government spokesman confirmed that one fundraising option being considered was the sale of some of the country's gold reserves.

"The Cypriot government put various options forward, including this," Christos Stylianides told a news conference.

He blamed the gulf between the original bailout total and the new 23bn figure on the previous administration and the time it took to negotiate a bailout, delays which pushed the cost of recapitalising its banks much higher.

Mr Stylianides accused former President Dimitris Christofias of failing to "take responsibility, and complete indecisiveness" in promptly negotiating a bailout.

'Big burden'

Analysts said the increase in the cost of the bailout meant Cyprus faced huge new challenges.

Jonathan Loynes, chief European economist at Capital Economics, said that the "biggest burden of the increase in the bailout will fall on depositors and bank bond-holders, whose combined contribution will rise from an expected 5.8bn euros to 10.6bn euros."

Under bailout terms agreed in March, depositors with more than 100,000 euros in savings will bear part of the cost of the rescue.

The bank sector on which much of the Cypriot economy was dependent is shrinking, and thousands of jobs are being lost.

Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.

Capital controls

Late on Thursday, Cyprus relaxed restrictions that were imposed last month on access to accounts in order to head off a run on banks.

The capital controls, the first that any eurozone country has applied, were put in place when banks reopened on 28 March after they were closed until a bailout agreement.

A new decree, which will remain in place for seven days, lifts all restrictions on transactions under 300,000 euros, a move aimed at helping cash-starved domestic businesses which had difficulty paying suppliers and employees.

Also, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros.

However, the daily cash withdrawal limit of 300 euros stays in place.

Meanwhile, eurozone officials at the meeting are also due to review Slovenia's growing problems.

There will be no discussion at the meeting of finance ministers, and the country will not make an application for bailout funds.

But Slovenia's finance minister, Uros Cufer, is expected to present to EU and European Central Bank officials his plan to shore up the country's finances.

Slovenia, which adopted the euro single currency in 2007, has been forced to recapitalise its main banks and the economy is struggling.
(Agencies)

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