Troika headed for Cyprus to broker bailout deal

The troika of international lenders is due to arrive in Cyprus on Thursday to complete a draft agreement on a bailout deal to rescue the island's recession-hit economy and Greece-exposed banks. "The troika will arrive on Cyprus on Thursday with negotiations aimed at achieving agreement on granting a loan to Cyprus starting Friday," government spokesman Stefanos Stefanou said in a statement. The announcement ends speculation that the troika would stay away because of the government's own counter-measures to the lenders' harsher austerity plan. Cyprus applied for a full EU bailout in June after its biggest lenders, Cyprus Popular Bank and Bank of Cyprus, could not meet new capital reserve limits because of huge losses due to their exposure to bailed-out Greece. Eurozone member Cyprus has the unenviable tag of being the first country to hold the bloc's six-month rotating presidency, which it assumed on July 1, while also negotiating EU emergency aid. Nicosia had wanted to sign a memorandum for EU financial aid before the Eurogroup of finance ministers on November 12. A document leaked to the media shows the government apparently proposing to raise revenue through more taxation and fewer cutbacks over a longer period than proposed by the troika. No figure has been given as to how much Cyprus actually needs but many experts believe it will exceed 10 million euros ($12.8 billion) to prop up an 18 billion euro economy. It hopes to cut the debt gap by slightly more than one billion euros by the end of 2016 rather than the one billion euros in mostly public finance cuts the troika seeks by 2015. The proposal of the troika -- the European Commission, European Central Bank and the International Monetary Fund -- is 80 percent through savings in expenditure cuts and 20 percent via increased taxes. The government's proposed ratio is 60:40 including a two percent hike in VAT to 19 percent by 2014, a five euro cent rise in excise duty on petrol and 150 million euros slashed off state benefits. Troika representatives have visited Cyprus twice since June, when it called for help after both the Bank of Cyprus and Cyprus Popular Bank said they could not raise funds to meet recapitalisation requirements. The troika reportedly wants to slash the state payroll by 15 percent, shave 10 percent off welfare benefits, scrap an inflation-linked, cost-of-living allowance and roll back government-subsidised housing finance. But the government has resisted such austerity moves it says would undermine an economy already in recession and expected to shrink by 1.5 percent this year.