Cyprus seeks help from EU to reduce burden of bailout conditions

Cypriot President Nicos Anastasiades has announced he will appeal for extra assistance from the EU after it emerged yesterday that the country would need to raise an extra 6 billion euros ($7.8bn) to secure a 10 billion euro bailout from Brussels and the IMF.

Nicos Anastasiades is urging EU leaders to change their policy towards Cyprus, but he is not asking for more money.

The president made the announcement ahead of a eurozone finance ministers meeting in Dublin.

According to a draft document prepared by the country’s creditors, the cost of the rescue has risen to 23 billion euros from 17.5 billion euros, with Cyprus now having to find 13 billion euros of this.

The Dublin meeting will review how Cyprus can raise its contribution to the bailout being put together by the EU and IMF.

A Cypriot official in Dublin said Cyprus is not seeking more bailout money, but is rather seeking help from EU to reduce the burden of the conditions to make the bailout possible.

Meanwhile, the German government has confirmed that the size of a eurozone bailout would not rise.

“The contribution from international creditors will not change,” said German government spokesman Steffen Seibert, noting that 10 billion euro package was “already very large”.

Nicos Anastasiades said he had already spoken to EU Economy and Euro Commissioner Olli Rehn ahead of the Dublin meeting.

The president also said he would also be writing to European Commission chief Jose Manuel Barroso and to EU President Herman Van Rompuy.

“The letter to Mr. Barroso and Mr. Rompuy will refer to the need for EU policy to change towards Cyprus by giving it extra assistance, given the critical times we are going through as a result of the economic crisis and the measures imposed on us,” Nicos Anastasiades said.

Analysts said the increase in the cost of the bailout meant Cyprus faced huge new challenges.

Jonathan Loynes, chief European economist at Capital Economics, said that the “biggest burden of the increase in the bailout will fall on depositors and bank bond-holders, whose combined contribution will rise from an expected 5.8 billion euros to 10.6 billion euros.”

Under bailout terms agreed in March, depositors with more than 100,000 euros in savings will bear part of the cost of the rescue.

The bank sector on which much of the Cypriot economy was dependent is shrinking, and thousands of jobs are being lost.

Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.

Late on Thursday, Cyprus relaxed restrictions that were imposed last month on access to accounts in order to head off a run on banks.

The capital controls, the first that any eurozone country has applied, were put in place when banks reopened on March 28 after they were closed almost two weeks until a bailout agreement.

A new decree, which will remain in place for seven days, lifts all restrictions on transactions under 300,000 euros, a move aimed at helping cash-starved domestic businesses which had difficulty paying suppliers and employees.

Also, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros.

However, the daily cash withdrawal limit of 300 euros stays in place.

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