Cyprus bailout deal 'several meetings' away

Cyprus Finance Minister Vassos Shiarly briefs his eurozone partners Thursday on his government's mounting money problems but diplomats are making clear that any bailout for the Mediterranean holiday island nation is well down the line. "Of course we will speak about Cyprus on January 21," when the Eurogroup of finance ministers next meets in Brussels, said one diplomat, who asked not to be named. However, "it will take several meetings" to wrap up any package. The mooted Cyprus bailout, small compared to those for neighbouring Greece, Ireland or Portugal, has been a nagging thorn in the side of the eurozone and the European Union for many months, distracting attention. With a Communist president, a territory divided with Turkey plus an unusual alliance -- in EU terms -- with Russia, the former British colony of Cyprus is considered an awkward eurozone case. "It's not the size of the bailout that's the problem, it's the political signals that the act of granting financial aid sends that grates on quite a few countries' governments," one top ministerial aide told AFP recently. The amount involved is put at around 17 billion euros ($22 billion) compared to the hundreds of billions for the other bailouts mounted by the EU and International Monetary Fund, but the issue has rumbled on since Nicosia's June cry for help. Cyprus had hoped to secure a 5.0 billion euro loan from Russia, on top of 2.5 billion euros it already borrowed in 2011, but agreement never came. February polls in Cyprus are the latest hold-up to emerge and even though President Demetris Christofias is not standing for re-election, there is an unstated preference to wait until the pro-Moscow leader is out of the equation. "It is important ... that there are no special conditions for Cyprus," German Chancellor Angela Merkel said on Wednesday in Berlin. "We have generally accepted rules in Europe and we are a long way from finishing the negotiations." "Many people, inside and outside government, think that it might perhaps be wiser to wait until the election is over and see what happens at that point," a source from an eurozone finance ministry said. "We are waiting for Cyprus to make a move," said Irish Finance Minister Michael Noonan in Dublin on Wednesday. Noonan, who will chair EU and eurozone finance minister gatherings until end-June, was quick to add: "They will have our support." Shiarly and Treasury officials will set out to eurozone ambassadors when they meet in Nicosia on Thursday answers to questions on debt sustainability, suspicions of money-laundering and difficulties in the exchange of tax information. All the issues are considered sensitive and are blamed for holding up a detailed analysis of the island's public and banking finances by the so-called Troika of backers -- the European Commission, European Central Bank and the IMF. The 17 billion euros is equivalent to an entire year's output for the economy of Cyprus and a bailout of that amount would take its debt ratio to 200 percent of gross domestic product, compared with the EU limit of 60 percent. One diplomat insisted that before concrete steps could be taken, it is essential that "everyone" is satisfied with the numbers produced by the Troika, and that the amount sought is "what's really needed." Seen as "another Iceland, where offshore financial activities outweigh GDP several times over," the major problem is that the Cyprus government "has not been cooperating," the diplomat said. Another diplomat said the hugely over-leveraged Cypriot financial sector has assets worth 800 percent of GDP, with a significant "Russian dimension" and also heavy City of London investment. Asked if a deal would take months to conclude, this official said: "Clearly, yes." Cyprus, like many other EU states, has adopted austerity measures in the shape of cuts and tax hikes to try and balance the public finances but these have not done the trick. The changes "have not succeeded in providing a solution to the economic problems," President Christofias said in a New Year's message, instead they had "recycled and worsened economic and social injustice."