Bloomberg News

Cyprus Debt to Be Sustainable After Bank Aid, Shiarly Says

September 05, 2012

Cypriot finance minister Vassos Shiarly said rescue funds Cypriot banks will receive for their recapitalization are unlikely to make the government’s debt unsustainable, even as the bailout amount remains unspecified.

“In our calculations we believe that there is no such risk,” Shiarly, a former executive at Bank of Cyprus Plc, the country’s largest lender, said in an interview in Nicosia yesterday. “The amount required is not likely to exceed the amount that will push us into areas of lack of sustainability.”

The east Mediterranean island’s finance minister said that there is no agreement yet with the so-called troika, of the European Commission, the European Central Bank and the International Monetary Fund, on the exact amount which Cypriot lenders will require for their recapitalization.

Shiarly said the amount needed which “has not yet been specified or agreed” is still being discussed. He said the exact amount required to recapitalize banks is harder to determine than what the state needs in order to refinance existing debt.

On June 25, Cyprus, which assumed the European Union’s rotating presidency in July, became the fifth of the euro area’s 17 member states to seek a rescue, following Greece, Ireland, Portugal and Spain, after Cyprus Popular Bank Pcl, the country’s second-largest, sought government backing for a 1.8 billion-euro ($2.3 billion) right offering. Two days later, Bank of Cyprus, the island’s largest lender, sought 500 million euros of government aid.

‘Worse Shape’

Troika officials told Cypriot lawmakers on July 27 that the country’s public finances “are in worse shape than we expected,” signaling that the bailout may exceed the 10 billion euros staffers first estimated. The new estimate is in the range of 12 billion euros to 16 billion euros, a European official said last month on condition of anonymity.

The discovery of natural gas in the island’s offshore territory in December, will “make a tremendous difference” in the future, Shiarly said.

“The mere prospect of gas coming onshore, even within the next five, six or seven years, is enough to give an impetus and hope that it will help Cyprus out of its financial difficulties,” he said. “The current political difficulties with Turkey are not an obstacle to the exploitation of natural resources.”

Gas Discovery

Houston-based Noble Energy Inc., which holds a natural gas exploration and exploitation license for block 12 in Cyprus’s exclusive economic zone, said that it discovered as much as 8 trillion cubic feet of gas, which is Cyprus’s first discovery. Turkey, which occupies the northern part of Cyprus following a 1974 invasion in response to a Greek inspired coup, urged Cyprus to freeze oil and gas exploration until a settlement is reached and sent warships to the area.

Shiarly said the troika submitted to the Cypriot government in late July a “rough proposal” of the bailout agreement which has been discussed throughout August with the international lenders. He said that while talks have made “huge progress,” there are still areas to be resolved in the next two weeks before negotiations resume after Sept. 17.

The benefits for Cyprus from a requested 5 billion euro loan from Russia aren’t “necessarily different from those that would be obtained from a troika loan,” Shiarly said.

He said Cyprus has not received confirmation regarding the loan from Russia, which would be the second after the governments in Moscow and Nicosia signed an agreement for a 2.5 billion euro loan last year.

To contact the reporter on this story: Stelios Orphanides in Nicosia at

To contact the editor responsible for this story: Craig Stirling at

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