November 18, 2012 4:57 pm

Cyprus close to running out of money

Since Cyprus was cut off from international credit markets 18 months ago, Demetris Christofias, the country’s Moscow-educated communist president, has found ways to wriggle out of the grip of austerity-minded EU bailout negotiators.

First, he secured a €2.5bn loan from the Russian government, which was supposed to last three years but that the island nation burnt through far quicker.

Then, after being convinced by aides to request a bailout in June, he got three semi-state-run companies – including the Cypriot ports authority and telephone company – to lend the government about €175m to bide time as the Kremlin debated another €5bn loan request.

At the same time, said one former senior government official, Cypriot banks bought government Treasury bills even after the debt was downgraded to junk, raising questions about “the methods used to ‘convince’ the banks to fund the government”.

Mr Christofias’ luck, however, appears to have run out.

According to senior EU officials, Nicosia’s coffers will run dry sometime in the next three or four weeks, forcing Mr Christofias to cut a deal with the so-called “troika” – representatives of the EU and International Monetary Fund – which has been in Nicosia for the last week on a “scoping mission”, bureaucratese for a wake-up call.

“They have been procrastinating for months now, and – without even any troika people on the ground – have repeatedly claimed that they are close to achieving results,” said one senior eurozone official. “Without having started anything!”

But if Mr Christofias is feeling cornered, he is not showing it. Instead, government officials involved in negotiations sheepishly concede he has fallen back on the rhetoric of his 20-year stint as general secretary of Akel, the Cypriot communist party.

He recently vowed to “take to the streets with the workers” if the troika insisted on scrapping cost-of-living allowances in trade union contracts, and has dug in his heels against privatising state assets.

But the demand that seems to have angered eurozone creditors most is his insistence the troika spare Cypriots’ Christmas bonuses. On Wednesday, he told union leaders he would make sure bonuses were paid regardless of where bailout talks stood.

“If the Christmas bonuses are cut I’ll be one of the demonstrators outside the finance ministry,” he said.

For eurozone officials, the demand is seen as symptomatic of the long-running problem they have with Mr Christofias: he asks for help, but insists on setting the terms.

“He is dreaming if he thinks the Christmas bonuses can be paid,” said a senior EU official involved in discussions. “He’ll run out of money before.”

“The president fears that this may...impact on election results” in February, when Cyprus’ next president is chosen. “His aim is for Cyprus to be rescued, but not in his tenure.”

Christmas bonuses are a sensitive issue for Cypriot workers, who are used to receiving an extra month’s salary to pay for festivities and, often, a trip abroad. The bonus also gives a boost to the island’s retailers, who are enduring a steady decline due to the prolonged crisis.

“My family – my wife and two children – use this money for Christmas shopping and other holiday expenses,” said Ilias Petrou, a bank employee. “They can’t cut it. It’s part of our collective wage agreement.”

Mr Christofias has denied he is delaying for political reasons, and his spokesman, Stefanos Stefanou, said the president wanted to “achieve a bailout agreement as soon as possible,” though not at any cost.

But his brinkmanship has left some of the country’s diplomats and finance ministry officials negotiating the bailout bemused.

Mr Christofias has already had two finance ministers quit in 16 months, and the current occupant – Vassos Shiarly, a British-educated banker who came out of retirement to accept the post – was recently forced to deny rumours that he, too, was ready to resign.

“The election is a consideration, but it’s also more the position taken by a leftwing government,” said a senior finance ministry official. “Leftwing politicians have a lot of opposition to what they call austerity.”

The 35-member troika mission is due to leave on Monday, deal or no deal, and Mr Christofias’ allies are keen to remind doubters who is in charge. A senior member said of Akel: “Whatever the finance ministry may say, the decision to ask for help is up to the president.”

Additional reporting by Daniel Dombey in Istanbul and Kerin Hope in Athens

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