Finance ministers of France and Germany call for negotiations on a financial rescue to proceed “quickly”.
Finance ministers of the 17 member states of the eurozone will hold talks on a potential €17.5 billion bail-out of Cyprus when they meet in Brussels on Monday evening (4 March).
The finance ministers of France and Germany issued a joint statement on Sunday (24 February), following the election of Nicos Anastasiades as the president of Cyprus, calling for negotiations on a financial rescue to proceed “quickly”. Although Cyprus is one of the eurozone's smallest economies, other member states are worried that failing to provide financial assistance will risk re-igniting the currency's crisis. Equally, however, they disagree on the form that the help should take and how much it should differ from previous eurozone bail-outs in seeking to force private investors to pay.
Pierre Moscovici, France's finance minister, and Wolfgang Schäuble, his German counterpart, said that they hoped a bail-out would be agreed before the end of March, just weeks before Cyprus is scheduled to run out of money. “Such a programme should achieve a significant financial, fiscal and structural adjustment,” they said.
Among the options being considered by finance ministers is a plan for a ‘bail-in' where depositors in Cypriot banks are forced to take losses on their investments to pay for the rescue.
This would have two advantages: Cyprus's debt burden would not increase to 140% of gross domestic product (GDP) – an extremely high level – which it is estimated to do if the country receives €17.5bn in bail-out loans; and it would make the rescue more palatable for Germany and other creditor countries, because it would lower taxpayer contributions and shift the burden onto wealthy Cypriot bank depositors.
Many of those who have large deposits in Cypriot banks are wealthy Russians who choose the island because of its favourable tax conditions. Other eurozone member states, as well as Cyprus's new president, oppose the idea because they believe it risks creating uncertainty in the financial system.
The eurozone's finance ministers will also continue discussions on how the eurozone's rescue fund, the European Stability Mechanism (ESM), will manage payments to recapitalise banks directly.
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