NEWS,31.07.2012

Cyprus taxes set for hike to pay for bailout

International lenders negotiating a bailout for cash-strapped Cyprus are likely to seek cutbacks in its public payroll and some increases in taxation, the Cypriot finance minister said today.Officials from the International Monetary Fund, European Commission and European Central Bank held inconclusive talks in Cyprus last week. Cypriot officials said discussions would continue, with a new visit by the team, known as the "troika", possibly in September."From our side, there are certain issues which are not acceptable from the outset and require further discussion," said Vassos Shiarly, Cyprus's finance minister.He did not elaborate on the differences with lenders - the troika's insistence on scrapping wage indexation has been widely reported as a point of dispute - but implied that cutbacks in salaries in an inflated public sector could be an option.Cyprus, one of the smallest of 17 nations sharing the euro, became the fifth member of the currency bloc to seek a bailout last month, in its case from a banking sector burdened by the debt restructuring European leaders agreed for Greece."Based on the experience of Portugal and Spain, we believe the troika will expect cutbacks in state spending, which include the payroll, and an increase in taxes which will not impact the economy," Shiarly, a former top banker, told the semi-official Cyprus News Agency.He said however that the decision on what measures to take would be up to Cyprus, and not lenders."Since we are trying to find a considerable amount, that won't be achieved by cutting back on electricity or telephone bills," he said.Authorities introduced staggered cuts in public sector salaries last year, a two-percentage point rise in value-added tax this year, and increased tax on private-sector earnings.Glafcos Hadjipetrou, who heads Cyprus's main civil servants union Pasydy, said any measures should be balanced. "It is not possible for some people to finger-point and target public sector workers at every opportunity," he told reporters.Cyprus's two largest banks booked considerable losses on the writedown in Greek sovereign debt this year, diluting their regulatory capital and forcing them to seek government aid to recapitalise. Combined, the banks seek 2.4 billion euros, the equivalent of more than 10 percent of Cyprus's GDP.Shut out of international financial markets for more than a year in part because of fiscal slippage, Cyprus had little option but to seek aid from its EU partners.It has also asked Russia, which lent Cyprus 2.5 billion euros last year, for another 5 billion euro loan.It is not clear how much Cyprus will require from the troika. Authorities say the bailout will be comprehensive, and not limited to recapitalising banks.

 

Greece says cash reserves drying up

 

Near-bankrupt Greece is fast running out of cash while it waits for its next installment of aid from international lenders, a deputy finance minister said on Tuesday, sounding the alarm on the country's precarious financial position. Greece's European partners have repeatedly promised the country will be funded through August, when it must repay a 3.2 billion euro bond, but the details of the funding have yet to be disclosed.In the absence of that money, Greece would run out of funds to pay everyday public expenses ranging from police and other public service wages to pensions and social benefits. The country is wholly reliant on aid from its European partners and the International Monetary Fund, who have turned up the pressure in recent weeks by withholding further aid until an assesment of Greece's compliance with reforms is complete."Cash reserves are almost zero. It is risky to say until when (they will last) as it always depends on the budget execution, revenues and expenditure," Deputy Finance Minister Christos Staikouras told state NET television."But we are certainly on the brink, we did not receive the aid tranche we were supposed to and we have the pending issue of an ECB bond maturing on Aug. 20." Greece has narrowly dodged bankruptcy several times before, with the government carrying out a juggling act of holding off on paying some suppliers and issuing T-bills until the next tranche of aid from lenders arrives. The assessment of Greece's progress in meeting the terms of its bailout by EU/IMF inspectors, who are currently on a visit to Athens, is not expected until September. Adding to the uncertainty, Greek political leaders have been wrangling over €11.5bn of cuts that are crucial to appeasing the lenders.

 

Obama: Eurozone must take decisive steps

 

US President Barack Obama said on Monday that the eurozone is not buckling under the weight of the debt crisis, but that "decisive steps" have yet to be taken.Speaking at an event for campaign donors, the Democratic incumbent in the November 6 presidential election noted that the US economy is still unsteady, and warned of "some continued headwinds over the next several months.""Europe is still a challenge, and a lot of people in this room who have business in Europe understand that," he said to some sixty people, including Wall Street CEOs. "I don't think ultimately that the Europeans will let the euro unravel. But they're going to have to take some decisive steps. And I'm spending an enormous amount of time trying to work with them - and Tim Geithner is spending a lot of time working with them - to recognise that the sooner they take some decisive action, the better off we're going to be," Obama added, referring to the US treasury secretary.Obama spoke of the US's own "decisive action," referring to the $800bn stimulus package his administration pushed for in 2009."Despite it's unpopularity, (the plan) avoided this chronic bleeding wound that has been an enormous problem not just for Europe now, but for the entire global economy," he said.Obama's campaign for reelection suffers in the the polls from voters' attitudes on the wavering economy. Unemployment is at 8.2%, still 3% higher than before the 2008 crisis, and the White House does not expect the rate to dip below 7.9% before the end of the year.