Cyprus aims to sell debt for a second time this year as part of a plan to exit its international rescue program ahead of schedule, President Nicos Anastasiades said today, brushing off a slump in Greek bonds.
After ending its four-year exile from bond markets in June, Cyprus intends to sell more debt once it has tightened foreclosure rules so banks can tackle bad loans, Anastasiades said in an interview in Milan, where European Union and Asian leaders are meeting. The measure was demanded by the official creditors who are financing the country’s 10 billion-euro ($12.7 billion) bailout.
“What we want is, through adhering to our commitments, to achieve an exit from the bailout program at the earliest possible time,” Anastasiades said. Greece and Cyprus are “two dissimilar cases,” he added. “There’s a different situation that prevailed and that prevails in Greece.”
A year and a half after becoming the fifth and last euro-area nation to enter an international bailout in exchange for unpopular budget cuts, Cyprus is seeking to bolster market confidence just as investors turn against peripheral European debt. The risks of an early rescue exit have been highlighted this week by Greece, which triggered a selloff in its bonds and stocks by pushing to leave its own program of financial support.
Greek Exit
Greece’s 10-year yield jumped 98 basis points to 8.71 percent at 1:50 p.m. London time today, the biggest increase in at least two years. Yesterday it surged 85 basis points.
Over the past month, the Greek government has said it wants to leave its program at end-2014, more than a year ahead of schedule. Some other euro-area governments expressed concerns about the plan this week. Greece has received around half of the total 496 billion euros in aid pledges for the rescued euro-area nations.
Anastasiades said the Cypriot government aims to end its rescue, due to last into 2016, at some point next year. He declined to be more precise about the timetable, saying the priority is to bolster the government’s credibility by fulfilling the current aid conditions including the “outstanding” matter of the foreclosure rules.
A disagreement about foreclosure legislation with the euro area and the International Monetary Fund, which finance the Cypriot rescue program, could be settled by early November, paving the way for the next aid disbursement to the country, said the president. The spat is holding up the current European-IMF review of Cypriot progress under the bailout.
Foreclosure Legislation
“We would already be at that stage” of selling more debt “if we didn’t have this delay related to the outstanding issue on foreclosures,” Anastasiades said. Pressed whether Cyprus would sell bonds right after any completion of the European-IMF review, he said: “I believe yes, and as long as market conditions permit.”
Parts of home foreclosure legislation that the Cypriot parliament approved on Sept. 6 breach the aid conditions by giving borrowers too much leeway to default, according to the euro area and IMF. That’s holding up a 350 million-euro disbursement.
The international demand for strengthened powers of foreclosure in the country comes as Cypriot banks struggle with the highest percentage of bad loans in Europe. The banking system’s ratio of non-performing loans was 45 percent in June.
Anastasiades predicted today that any difficulties resulting from European stress tests being conducted on Cypriot banks would be “manageable.” The Europe-wide results are due to be released on Oct. 26.
Bloomberg
