Message of the Eurogroup deconstructed. Του Μάριου Επαμεινώνδα

What did the Eurogroup say

What did the Eurogroup mean

Title:Eurogroup Statement on Cyprus

Title: A fair warning to Cyprus

The Eurogroup has reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. This agreement is supported by all euro area Member States as well as the three institutions. The Eurogroup fully supports the Cypriot people in these difficult circumstances.

The Eurogroup accepts the agreement which was imposed to the Cyprus authorities by IMF and the German authorities. A few member states agree with this, while the rest find it futile to disagree. The fact that the Cypriot people are going to suffer cannot change anything. We can say a word of comfort though, it does not cost anything.

The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.

The programme should be received as an alternative to bankruptcy. It represents the way towards what the German authorities and the IMF consider as sustainable growth and sound public finances.

The Eurogroup welcomes the plans for restructuring the financial sector as specified in the annex.

These measures will form the basis for restoring the viability of the financial sector. In particular, they safeguard all deposits below EUR 100.000 in accordance with EU principles.

Two major banks of Cyprus are going to be dissolved in ways that ordinary people cannot really understand as specified in the annex.

The only thing that is safeguarded from the dissolution are deposits below EUR 100.000, in accordance to an EU principle, which was easily violated last week.

The programme will contain a decisive approach to addressing financial sector imbalances. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. In addition, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation.

The programme will downsize one of the biggest contributors of Cyprus economy i.e. the banking sector. In view of this fact, the Cypriot authorities will be forced to reduce public spending very soon (i.e impose lower salaries, minimize investment in development and social welfare) and privatize public companies.

The Eurogroup welcomes the Terms of Reference for an independent evaluation of the

implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent. In the event of problems in the implementation of the framework, problems will be corrected as part of the programme conditionality.

In order to satisfy the public opinion of Germany and certain other interest groups, a strict system of capital transfer towards Cyprus will be imposed, so that it will be guaranteed that big capital shall not reach Cyprus. The owners of these capitals may choose other EU countries, where such strict systems do not apply. In the event that this system is not applied strictly, the loan installments to Cyprus shall be suspended.

The Eurogroup further welcomes the Cypriot authorities’ commitment to take further measures.

These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.

Further measures are imposed on the Cyprus authorities. These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. Any agreement between Cyprus and the Russian Federation on a financial contribution has to be approved by the Eurogroup.

The Eurogroup urges the immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems.

This is a final warning to Cyprus and Greece: Find immediately a way to distribute your limited resources, but don’t expect any more support, in case that any instability is caused by your rushed decisions.

The Eurogroup requests the Cypriot authorities and the Commission, in liaison with the ECB, and the IMF to finalise the MoU at staff level in early April.

This is another warning to Cypriot authorities: Agree to the terms which will be imposed on you by  the Commission, the ECB, and the IMF next week, in order to get the 10bil loan.

The Eurogroup notes the intention of the Cypriot authorities to compensate potential individual victims of fraudulent practices, in line with established legal and judicial procedures, outside the programme.

In the unlikely scenario that the Cyprus authorities find ways to compensate potential individual victims of fraudulent practices, without asking for financial support, that’s ok with us.

The Eurogroup takes note of the authorities’ decision to introduce administrative measures,

appropriate in view of the present unique and exceptional situation of Cyprus’ financial sector and to allow for a swift reopening of the banks. The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms of scope and duration in line with the Treaty.

This is a reminder to the Cypriot authorities: In order to avoid further financial problems, you have to find a way to re-open your banks soon taking into account a lot of technicalities which will make your task even more difficult. Nobody from the Eurogroup, shall help you in this, otherwise it would have been stated here.

Against this background, the Eurogroup reconfirms, as stated already on 16 March, that – in principle – financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. The Eurogroup would welcome a contribution by the IMF to the financing of the programme. Together with the decisions taken by Cyprus, this results in a fully financed programme which will allow Cyprus’ public debt to remain on a sustainable path.

The Eurogroup reconfirms that this is just the first step of a long process. Even the loan of 10bil is not warranted yet.

Two warnings for Cyprus:

(a)In any case, the economic downsizing of Cyprus, does not seem to affect the stability of the euro area, so follow the guidelines prescribed to you.

(b)In this process, the IMF, known for its rigidity towards loan takers, will have a monitoring role. So adjust your decisions to its demands. in order to receive the installments of the loan.

The Eurogroup expects that the ESM Board of Governors will be in a position to formally approve the proposal for a financial assistance facility agreement by the third week of April 2013 subject to the completion of national procedures.

The time is running out, so is your money. You have to do everything you have been told until the third week of April, in order to get the loan.