CYPRUS opened a fresh round of talks with its EU partners and the IMF – collectively known as the troika — yesterday with the aim of agreeing on the terms of a bailout for the cash-strapped island.

The two sides engaged in 12 hours of talks yesterday, which will resume this morning but both remained tightlipped on what, if anything had transpired, saying it was in the best interests of the negotiations.

Yesterday’s talks were open ended, but it was unlikely that a deal was imminent, a senior Cypriot official told Reuters on condition of anonymity. Also Finance Minister Vassos Shiarly is due to leave for Brussels on Monday.

“A great deal of work has been done, there has been progress in the negotiations with the troika so far,” said government spokesman Stefanos Stefanou, who is also a member of the island’s negotiating team, referring to previous consultations with the group. “Obviously though a lot of work remains to be done.”

The spokesman said there was “will and determination” to come to an agreement as soon as possible but warned against public discussions “because they may create more problems.”

“Everyone’s main position should be that we have a difficult task ahead and the aim is to achieve a deal that serves Cyprus’ best interests,” Stefanou told reporters.

The size of the potential bailout — speculated to be anything between €11 and €16 billion — the bulk of it for the Greece-exposed banks — will be huge in proportion to the €17.9 billion economy, the third smallest in the euro zone.

Debate on how Cyprus will manage to pay it back will feature prominently in discussions.

Cyprus says it wants the euro zone’s ESM bailout fund to recapitalise the banks directly, but heavyweights in the bloc disagree with the ESM undertaking legacy debt.

“Economically the biggest challenge of these talks will be how to get a deal which make the debt sustainable,” economist Fiona Mullen told Reuters.

The IMF, which announced its participation in the mission on Wednesday, hinted as much: It said it wanted a ‘financing solution consistent with debt sustainability’.

Stefanou said the banking sector will be discussed today with the participation of the Central Bank Governor.

The amount needed for the recapitalisation of the island’s banks is something the two sides disagree on.

Lenders want privatisations, wage cuts in a public sector which is one of the most highly paid in Europe, a culling of wage indexation and the creation of a “bad bank” to park soured assets.

There are also disagreements on privatisations and a troika demand to scrap wage indexation or CoLA, which the government had admitted in the past, was an unfair system as it benefited high earners the most.

Cyprus says it will not privatise “profitable” state enterprises like the telecommunications company CyTA, while President Demetris Christofias said he is prepared to take to the streets to defend wage indexation.

It is generally believed that the current government does not want to sign a bailout and is hoping to drag out the negotiations until the presidential elections next year.

Published by: www.cyprus-mail.com