THE EUROZONE'S 17 finance ministers will meet in Brussels tomorrow after an EU leaders' summit to discuss Cyprus’ financial bailout, officials said yesterday, signalling growing momentum for a deal.
The meeting, which follows a mission by the troika of international lenders to Cyprus, raised expectations that the eurozone was close to sealing a package of aid that the island asked for last June.
"Friday 5pm (1600 GMT) extra Eurogroup on Cyprus," Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings, said on his official Twitter feed.
"The expectation is that the Eurogroup will discuss the outlines of the aid programme," he said separately in a letter to the Dutch parliament.
The question of a bailout for Cyprus will also be discussed on the sidelines of this week's EU and eurozone summits although it is not officially on the agenda of either meeting, a German official said yesterday.
"Cyprus is not on the agenda, either of the European summit or the eurozone summit," the government official said, speaking on condition of anonymity.
"I don't think I'm telling any secrets.... that talks on Cyprus will take place on the sidelines," the official added, saying therefore no formal decision on any bailout would be taken by the heads of state and government.
The official said the German government would base its decision about a Cyprus bailout on the troika's evaluation and recommendation, which it hasn't received yet.
Crippled by its exposure to Greece, Cyprus needs funds from the eurozone to recapitalise its banks and to finance the government over the next three years.
Without help, it would slide into default, risking the eurozone's credibility and threatening progress made last year in convincing investors that the bloc will not be overwhelmed by its debt problems.
Initial estimates on the size of the bailout have been as much as the whole Cypriot economy produces in a year, some €17 billion, raising doubts whether the island would ever be able to pay back the money.
Officials told Reuters late on Tuesday that Cyprus may require a smaller bailout than that because it could raise money from a levy on deposits and other taxes.
Dijsselbloem told the Dutch parliament yesterday the bailout should be nearer to €10 billion. Reports put the bailout between €10 and €13 billion.
In his letter, Dijsselbloem said a programme for Cyprus must lead to a sustainable public debt level, allow it to repay its loans and revive the economy.
"The programme's size has to be limited," he said.
The troika - the European Commission, the European Central Bank and the International Monetary Fund - have told eurozone finance ministers enough progress had been made in Nicosia to hold the Eurogroup meeting, officials said.
The lenders are also discussing the possibility of Cyprus raising its corporate tax rate by 2.5 percentage points to 12.5 per cent. The lenders would also like to see Cyprus introduce a financial transaction tax, something the country opposes.
Eurozone officials have said they expected a decision on a bailout to be taken before the end of March. One of the most divisive issues is whether to force losses on depositors in Cypriot banks as part of a rescue package, known as a "bail-in".
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 rescue.
Berlin alleged that Cyprus has become a conduit for money-laundering. Russian individuals and companies have a high level of deposits in the banking sector.
Cyprus said any bail-in will spark the rapid withdrawal of funds from the island and undermine its entire banking system, making the economic situation even worse.
Eurozone leaders are not expected to give guidance at the summit today on whether or not depositors should be targeted, according to one senior eurozone source.
The European Commission, Spain and Italy are against a bail-in, while the European Central Bank has not taken a position, although it is wary of the risks, officials told Reuters.
ECB President Mario Draghi warned not to underestimate Cyprus' importance at his last news conference last week.
"Cyprus is a small economy, but the systemic risk may not be small," he said.
IMF Managing Director Christine Lagarde is not expected at tomorrow’s Eurogroup, prompting some EU officials to suggest the Washington-based lender may not co-finance the rescue package and will only give expertise. The IMF declined to comment.
One solution could be for Moscow to contribute to the bailout if it received the same credit status as eurozone lenders, meaning it gets repaid as a priority.
Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus - the two biggest banks on the island.
President Nicos Anastasiades is to travel to Russia to meet President Vladimir Putin in the coming weeks to discuss possible Russian help, officials said.
“We need patience and you will see that hard work brings good results,” Anastasiades said yesterday.
His visit to Moscow will be preceded by that of Finance Minister Michalis Sarris on Monday for talks with his Russian counterpart.
The talks will focus on the ways Russia could contribute to the bailout.
Cyprus has asked Russia to extend repayment of a €2.5 billion loan for five years to 2021 and cut the 4.5 per cent interest rate.
Dutch Finance Minister Jeroen Dijsselbloem