Monday, February 25, 2013

After election win, Anastasiades faces Cyprus bailout quagmire

By Michele Kambas and Deepa Babington

NICOSIA (Reuters) - Cypriot president-elect Nicos Anastasiades faces weeks of difficult talks with foreign lenders on a financial rescue for the island nation after sweeping to a resounding victory in an election on Sunday.

Cyprus presidential candidate Nicos Anastasiades (R), of the right wing Democratic Rally party, leaves a booth as his grandson Andis looks on at a polling station in Limassol February 24, 2013. REUTERS/Yorgos Karahalis

Eight months of talks on a bailout package have turned tiny Cyprus into a big headache for the euro zone, triggering fears of a financial collapse that could reignite the bloc's debt crisis.

Anastasiades pledged to hammer out a quick deal with foreign lenders and bring Cyprus closer to Europe, in a shift from the policies of the outgoing Communist government that first sought aid from Russia before turning to the European Union.

"We want Europe on our side. We will be absolutely consistent and meet our promises. Cyprus belongs to Europe," Anastasiades told jubilant supporters in his victory speech. "We will restore the credibility of Cyprus in Europe and internationally. I promise you."

Anastasiades, who will be sworn in on Thursday and assume power on March 1, will have little time to celebrate.

European officials want a bailout agreed by the end of March, but the 66-year-old lawyer will first have to overcome German fears that Cyprus is a hub for Russian money laundering and worries that it will never be able to pay back its debt.

Known for his no-nonsense style and impressive access to important European policymakers like German Chancellor Angela Merkel, Anastasiades took 57.5 percent of the vote in the run-off election, 15 points ahead of his anti-austerity Communist-backed rival Stavros Malas.

The decisive outcome showed a clear mandate from Cypriots for an aggressive, pro-bailout approach to resolving the nation's financial quagmire, despite growing despondency over austerity measures that will have to accompany any such rescue.

He will not have time to dither, newspapers said.

"Today the party is over. The new president must start the marathon to build new prospects for Cyprus ... Cyprus put him at the helm of a ship which is adrift, and heavily damaged," the daily Politis said in an editorial.

BAILOUT OPTIONS TRICKY

Financial markets had been hoping for an Anastasiades win to speed up a joint rescue by the European Union and International Monetary Fund before the island runs out of cash and derails the fragile confidence returning to the euro zone.

Cyprus has been shut out of international capital markets for almost two years, with the outgoing administration resorting to heavy borrowing from state-owned corporations to pay public sector salaries.

Yet prices on the island's internationally traded bonds have rallied in recent weeks. The quoted yield on a Cypriot 10-year benchmark bond has fallen to an 18-month low of 9.96 percent, according to Thomson Reuters data.

Talks to rescue Nicosia have dragged on since June, after a Greek sovereign debt restructuring saddled Cypriot banks with losses. It is expected to need up to 17 billion euros (14.5 billion pounds) in aid - about the size of its entire economy.

Virtually all rescue options - from a bailout loan to a debt writedown or slapping losses on bank depositors - are proving unpalatable because they push Cypriot debt to unmanageable levels or risk hurting investor sentiment elsewhere in the bloc.

German misgivings about Cyprus's commitment to fighting money laundering and its strong financial ties with Russia - which has already extended a 2.5 billion euro loan to the nation - have further complicated negotiations.

CLOSER TO EUROPE

Anastasiades takes the reins of a Mediterranean nation ravaged by its worst economic crisis in four decades, with unemployment at a record high of 15 percent. Pay cuts and tax hikes ahead of a bailout have further soured the national mood.

His most immediate task will be to appoint a finance minister who can convince Europeans to agree a swift bailout. The favourite for the post is former Finance Minister Michael Sarris, a respected former World Bank economist.

Anastasiades has stressed his pro-EU credentials make him more likely to seal a bailout deal than the outgoing president, who was the EU's only Communist leader.

In a clear shift with the policies of his predecessor who objected to any links with NATO, Anastasiades said one of his first tasks would be to apply for Cypriot membership of the NATO-affiliated Partnership for Peace.

Cyprus's Communist government held NATO responsible for what it says was a conspiracy to split the island in 1974, when it was ethnically divided between Greek and Turkish Cypriots.

"We need a government with weight that can talk to (EU) partners, that is cooperative, that can be heard and do what it pledges to do," Christopher Pissarides, a Cypriot who won the Nobel Prize in economics in 2010 told Reuters.

"We hadn't been doing this until now."

(Additional reporting by Stelios Orphanides; Writing by Deepa Babington; Editing by Pravin Char)

News

Monday, February 25, 2013

After election win, Anastasiades faces Cyprus bailout quagmire

By Michele Kambas and Deepa Babington