Cyprus will not accept a bailout from international lenders if it involves privatisations and social welfare cuts, President Demetris Christofias said yesterday (3 October), with the indebted government that holds the rotating EU presidency set to propose alternative savings.
Setting the tone for tough negotiations with lenders, Christofias said he would never sign a bailout deal which called for the sell-off of profitable state-owned enterprises, or which would abolish inflation-linked salary increments.
It was the first time Christofias – a Soviet-educated communist – explicitly ruled out lending proposals as they presently stand, though officials have frequently said they considered the proposals non-binding and "building blocks" towards a deal.
A draft economic adjustment programme prepared by the European Commission, the European Central Bank and the International Monetary Fund and submitted to Cyprus in July called, among other things, for ending wage indexation and embarking on a privatisation programme.
"We aren't just saying ‘no' to them," Christofias told Greek state broadcaster NET in an interview. "We are giving them counterproposals. They are being prepared, we are in the very final stages and which will provide for as much in savings as they [the troika) wants," he said.
Cyprus sought aid in June after its two largest banks suffered huge losses on their exposure to Greece, forcing them to turn to the government for aid.
The island, shut out of capital markets for 15 months and wrestling with its own fiscal imbalances and its first recession in almost 40 years, applied for a comprehensive bailout.
Wary at Greek experience
Cypriot officials have frequently been critical of the bailout conditions imposed on Greece, and the island's ruling communist party has said an exit from the eurozone could even be considered if their terms were too harsh.
"This neo-liberal method of dealing [with the crisis] is bankrupt," Christofias said, referring to Greece. "Its a vicious cycle, a Sisyphean task."
He also took aim at a perception southerners were too laid back. "As Cypriots we consider this an insult. We re-built Cyprus in three or four years after losing 70% of our economy," he said, referring to a war in 1974 which split the island into two and displaced thousands (see background).
Cyprus is the third-smallest nation in the 17 member eurozone. The bailout amount has not been defined, but Russia, a close business and political ally, last week said Cyprus required €15 billion from the EU.
Nicosia has also sought a €5 billion bilateral loan from Moscow. Russian Finance Minister Anton Siluanov said on 28 September his country would “coordinate” its aid to Cyprus with the EU.
The ministerial cabinet was preparing count-proposals and Christofias was scheduled to meet party leaders on Friday for further discussions.
Scrapping wage indexation and halting payment of year-end bonuses in the broad public sector is unlikely to go down well with a highly unionised workforce, particularly ahead of a general election in February 2013.
Christofias, elected in 2008 and with close ties to labour unions, has said he does not plan to seek a second term.