Elections in Cyprus Berlin Pressures New President on Reforms
In a run-off presidential election in Cyprus on Sunday, voters made clear that they are in favor of pursuing a European bailout despite the tough austerity measures that will likely accompany it. On Monday, German Finance Minister Wolfgang Schäuble released a joint statement with his French counterpart, Pierre Moscovici, urging that an emergency aid for the debt-ravaged country be finalized by the end of March.
"Discussions should resume shortly with a view to reach an agreement before the end of March," reads the statement. Saying that the final program "should achieve a significant financial, fiscal and structural adjustment," Schäuble and Moscovici added that "we are confident that the forthcoming government will significantly accelerate the pace of reforms to sustainable growth and to fiscal and financial stability, which are in the interest of Cyprus and the euro area as a whole."
Conservative candidate Nicos Anastasiades soundly defeated his leftist rival Stavros Malas, garnering 57.5 percent of the vote to Malas' 42.5 percent. The cornerstone of Anastasiades' campaign was a pledge to quickly reach a deal with Cyprus' euro-zone partners on a badly-needed bailout. He will be sworn in on Thursday.
"We will be absolutely consistent and meet our promises," he said in his victory speech on Sunday. "We will restore the credibility of Cyprus in Europe and internationally, I promise you."
That could be more easily said than done. Cypriot finances are in bad shape, with the country needing up to €17.5 billion to ward off insolvency and to prop up its ailing banking industry. The amount is roughly equal to the country's annual gross domestic product, which would make it by that measure the largest euro-zone bailout yet undertaken. Furthermore, there are deep concerns in the euro zone, particularly in Berlin, that a bailout would ultimately help the rich Russians who have parked their money in Cypriot accounts -- in addition to worries that the Mediterranean country isn't doing enough to combat money laundering.
A bailout would also massively increase the country's sovereign debt load. Yet allowing the country to enter insolvency, as Schäuble had hinted at earlier this year , or involving bank depositors in a bailout by forcing them to accept losses could unsettle investors and re-ignite a euro crisis which has faded into the background in recent months.
Comments from Schäuble over the weekend indicate that Berlin has not yet committed to a course of action. It is up to Cyprus, he told the daily Stuttgarter Zeitung on Saturday, to prove that it is "systemically relevant" for the euro zone. "I will not allow myself to be put under time pressure," he added.
Furthermore, 2013 is an election year in Germany and Chancellor Angela Merkel is aware that voters in the country view a Cyprus bailout with deep skepticism. Indeed, a new poll released over the weekend found that fully 63 percent of Germans are against providing Cyprus with aid, with only 16 percent in favor. In addition, 60 percent of those surveyed said that the issue is either "very important" or "important" to them in the approaching campaign.
Still, time remains short. The country has essentially been cut off from international capital markets for the last two years and the current interest rate on its 10-year bonds -- despite being an 18-month low -- is an unsustainable 9.96 percent, according to Thomson Reuters. In recent months, the government has been forced to borrow heavily from the pension funds of state-owned companies. Its banking industry is in a shambles as well, having been hit hard by write-downs of Greek debt on their books.
But in contrast to the previous government -- which had turned to Russia for possible bailout aid before approaching Europe -- Anastasiades is an avowed pro-European. "Cyprus belongs to Europe," he said on Sunday. "We want Europe on our side." He also promised to "take all of the necessary measures to lead Cyprus out of the financial crisis."