BRUSSELS — Finance ministers from euro area countries arrived here Friday as a showdown loomed with the International Monetary Fund over the size of a rescue deal for Cyprus seen as critical to the stability of the single currency.
The talks could stretch into the weekend, with finance ministers expected to seek to keep a lid on the overall costs of the rescue plan and with Christine Lagarde, the president of the I.M.F., expected to push for a deal that is generous enough to enable Cyprus eventually to pay the money back.
The Cypriot authorities want a plan that ensures that the island remains attractive to investors, who include many Russians with large deposits in the country’s banks.
Arriving at the meeting, Ms. Lagarde was blunt about the need for ministers to agree to a realistic package of measures. “All I know is that we don’t want a Band-Aid,” she said. “We want something that lasts, something that is durable and that will be sustainable.”
The key to a breakthrough is finding a way to bring down the size of any bailout package, estimated at about €17 billion, or $22 billion. That is a small amount compared with the rescue deal for Greece, but almost as much as Cyprus’s gross domestic product, which is about €18 billion.
European governments and the I.M.F. were expected to structure a bailout so that creditors including the European Central Bank reached a deal closer to a figure between €10 billion and €13 billion.
Jeroen Dijsselbloem, the president of the Eurogroup, which gathers finance ministers from countries in the euro zone, refused to speculate about the size of the deal as he arrived on Friday.
“I know what my main goals are,” said Mr. Dijsselbloem, adding that they were to make “sure that there is stability in the euro zone and that there is a new sustainable growth path possible for Cyprus.”
The most contentious issue is whether to force Cypriot depositors to take losses — perhaps in the form of a one-off tax on their holdings — in order to make the country’s debt more manageable. The Cypriot authorities have condemned any such initiatives on the grounds that they would do lasting damage to their financial services sector.
The other elements of a deal could involve Cyprus raising its low corporate tax rate, privatizing state assets and overhauling its banks to ensure that they are not havens for money laundering. Yet another factor is whether Russia will agree to lower the interest rate on a loan worth €2.5 billion it has already made to Cyprus.
Mujtaba Rahman, a senior analyst with the Eurasia Group, a political risk research and consulting firm, said it was likely that countries like Germany and Finland would ultimately reach a deal with the I.M.F.
“The fact is that some governments in the north of Europe need the I.M.F. also to be contributing money to Cyprus in order to convince their parliaments to give approval to a deal,” Mr. Rahman said.
The ferocious debate over how much pressure to put on euro area countries in difficulty stepped up a notch on Friday after it emerged that Mario Monti, the outgoing prime minister of Italy, suggested that the demands placed on him to tighten his country’s finances had been unfair.
In a letter sent Thursday to other E.U. leaders at the start of a two-day summit meeting here on the economy, Mr. Monti wrote that Italy “has been delivering on all the policy objectives” set out by the Union. But, in a thinly veiled reference to Spain, Portugal and Greece, he wrote that other countries “have been given extra time to reach their budgetary objectives.”
Italian voters weary of the E.U.-mandated austerity measures rejected Mr. Monti in an election last month.
Article source: http://www.nytimes.com/2013/03/16/business/global/showdown-looms-over-cyprus-bailout-deal.html?partner=rss&emc=rss
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