Just three months after having agreed with the troika for an external loan adjustment program, the Cypriot government calls for a “complete overhaul” on the rescue plan, reveals Financial Times.
According to the British newspaper, the Cypriot President, Nicos Anastasiades, urged European leaders to review the terms of the loan of €10 billion signed in March this year. The warning was clear: “Without an overhaul, Nicosia will not be able to meet its targets under the existing adjustment program.”
In a letter sent last week to the European Commission, IMF and ECB, the Cyprus government argues that the requirements of the rescue hurt more than they expected the country’s economy and its financial system. Specifically, the restructuring of the two largest Cypriot banks was “implemented without careful preparation,” harming the economic conditions in the capital market while forcing companies to implement capital controls that are stifling the economy of the island.
“The economy entered a deep recession, leading to a greater rise in unemployment and making fiscal consolidation even more difficult,” Anastasiades wrote in the letter. “I ask you to review the conditions in order to find a viable solution for Cyprus and its people,” the President added.
This demand of Nicosia comes a few weeks after the IMF admitted that the effects of austerity policies were underestimated in the design of the Greek program.
Specifically, Cyprus seeks a reversal of the restructuring of the two largest banks – Bank of Cyprus and Laiki – representing 80 percent of the national banking system.
The newspaper contacted a European source directly involved in negotiating the Cypriot bailout agreement who admitted they have been “confused” by the letter. However, the issue will be discussed during the meeting of Eurogroup on Thursday, although it is unlikely that the Cypriot request is approved.
“Essentially, the Cypriot President is asking for a complete overhaul of the program,” said the source, accusing the government of Cyprus as the one responsible for the lack of preparedness to implement the program.