NEWS,25.6.2012

Greek finance minister resigns, crisis deepens

Greece's new finance minister resigned because of ill health today, throwing the government's drive to soften the terms of an international bailout into confusion days before a European summit.Vassilis Rapanos, 64, chairman of the National Bank of Greece, was rushed to hospital on Friday, before he could be sworn in, complaining of abdominal pain, nausea and dizziness.Greek media said he had a history of ill-health.The office of Prime Minister Antonis Samaras, who himself only took office last Wednesday following a June 17 election, said Rapanos had sent a letter of resignation because of his health problems and it had been accepted.Samaras himself has only just emerged from hospital after undergoing eye surgery to repair a damaged retina.Both he and Rapanos had already said they would not be able to attend the June 28-29 European summit.It was a worryingly chaotic start for the new government, formed after the second election in a month, which faces a rocky road in responding to huge domestic opposition to a harsh international bailout in the face of steadfast European opposition to any watering down of its terms.Only hours before Rapanos's resignation, a hospital bulletin said he would be discharged tomorrow.He had undergone a gastroscopy and colonoscopy, an official at the Hygeia Hospital on condition of anonymity.The tests "showed everything is completely normal", it said.According to a source from one of the three parties in the new coalition government, Rapanos had been under heavy pressure from his family to turn down the stressful job because of his health problems.Earlier on Monday the three party leaders had announced a trans-Atlantic roadshow to try to persuade sceptical lenders to give them more time to repay the country's massive debt.Troika visit postponed The medical problems of Samaras and Rapanos had also forced a postponement of the first meeting between the new government and Greece's "troika" of international lenders, originally slated for Monday.Samaras's government, an unlikely alliance of right and left that emerged from the June 17 election, has promised angry Greeks it will soften the punishing terms of a bailout saving them from bankruptcy in exchange for deep economic pain.But euro zone paymaster Germany has strongly rejected major concessions.Berlin signalled on Monday that Europe would wait for the troika's report on Greece before taking any decisions on how to make adjustments to the bailout package to compensate for weeks of political paralysis and a deeper than expected recession.A new date for the troika visit has not been set.Samaras, 61, emerged from hospital on Monday with a bandage over one eye. He was under orders not to fly or make the long road trip to Brussels, doctors said.Speaking to Mega TV earlier, government spokesman Simos Kedikoglou had said Rapanos had told Samaras on Friday, after being offered the job, that he had a "chronic situation" that he had learned to live with and that it would not effect his ability to do the demanding and stressful job.Kedikoglou later said the government was not expected to name a replacement for Rapanos before Tuesday.The government said Samaras and the leaders of his two coalition allies - the Socialist PASOK and smaller Democratic Left would take their case for renegotiating the bailout conditions to Europe and the United States as soon as the prime minister was well enough.

Cyprus applies for EU bailout

Cyprus became today the fifth euro zone country to seek financial assistance from the EU's rescue funds, announcing it was applying for a bailout for its banking sector hit by exposure to the crisis in Greece.Tiny Cyprus needs to raise at least 1.8 billion euros - equivalent to about 10% of its domestic output - by June 30 to satisfy European regulators about the health of Cyprus Popular Bank, which saw its balance sheet hurt by bad Greek debt. It may seek more."The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill over effects through its financial sector, due to its large exposure in the Greek economy," a government announcement said.With its coffers emptying rapidly and hurtling towards an immovable deadline, the island suffered a further fiscal sovereign credit rating cut to non-investment, or junk, status by Fitch at BB .With a bailout widely viewed as all but inevitable, Cyprus has for weeks been trying to juggle its options between a bailout from Europe's rescue funds, the temporary EFSF and the permanent ESM, or a bilateral loan from either Russia or China.Cypriot President Demetris Christofias was scheduled to brief political leaders this afternoon, a statement from the presidency said.If Cyprus signs up for the EU rescue programme it will join the ranks of Greece, Ireland, Portugal and Spain.Christofias, the EU's only Communist leader, has been reluctant to accept the fiscal and regulatory conditions that might be attached to a European rescue.Weekend trips by government officials to China suggested Cyprus was still holding out hope for a bilateral loan from a third country.Commerce, Industry and Tourism Minister Neoklis Sylikiotis confirmed discussions in China were focused on a loan or a Chinese investment in the troubled Cyprus Popular Bank."We have had some contacts... We have requested an answer in coming days," Sylikiotis said in comments to the state broadcaster.Cyprus is fiercely protective of a corporate tax rate that is one of the lowest in the EU and eight months before a general election shows no appetite for the stringent spending cuts that any EU funding would tie it to."I think they want to avoid it (the EFSF) at least as the sole provider simply because they are afraid of the strings attached," said political analyst Hubert Faustman.Officials say any aid via the EFSF would likely be restricted to the banking sector and not to broader budgetary requirements.Cyprus, with just 1 million people, has a disproportionately large off shore financial sector that is heavily exposed to Greece, the larger neighbour with which it has close political links.Cyprus Popular needs a capital infusion urgently to satisfy regulators after writing off the value of Greek government bonds in a sovereign debt swap earlier this year.In its report, Fitch said the recapitalisation bill for Cypriot banks could potentially reach 4 billion euros. That amount, equivalent to 23% of GDP, would also take into account rising non-performing loans from the domestic market.Fitch said it saw a heightened possibility of the Republic needing both an EFSF bailout to recapitalise its banks and a bilateral loan from Moscow to cover gross budgetary financing requirements until the end of 2013.Moscow already provided Cyprus with 2.5 billion euros in a bilateral loan last year and has an interest in maintaining Cyprus as an offshore financial centre with low tax rates for Russian businessmen, who use it as a base to reinvest in Russia.However, seeking such large sums from Moscow or Beijing is controversial in Cyprus, where EU membership is a matter of national pride. It could be embarrassing for Brussels as well, as Cyprus assumes the bloc's rotating presidency on July 1.