Squaring the circle

11 February 2013 By Viktoria Dendrinou

The island state’s upcoming euro zone and IMF bailout could make its debt load unsustainable. Solutions like hitting bondholders or depositors are risky and controversial. But a mix of half-measures, boosted by a little optimism, could help Cyprus through its financial straits.

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A memo prepared ahead of the Feb. 11 Eurogroup meeting includes three alternatives to a full-scale bailout for Cyprus, aiming to produce a more sustainable solution, according to the Financial Times.
The alternatives include “bailing-in” uninsured depositors and investors, “bailing-in” junior debt holders and allowing Cyprus to retroactively recapitalise its banks through the European Stability Mechanism once the fund is allowed to do so.
European Central Bank executive board member Joerg Asmussen believes an aid package for Cyprus will be ready by the end of March, he told the German business daily Handelsblatt on Feb. 11.
Future revenue from gas could be used to service Cypriot debt through a special account, Eurogroup president Jeroen Dijsselbloem said on Feb. 7.
Cyprus will hold its presidential election on Feb. 17. The centre-right, pro-bailout and pro-privatisation candidate and opposition leader, Nicos Anastasiades, is leading in polls.

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