As Cyprus bailout is approved, Greece told to wrap up talks with troika quickly

Greece came under strong pressure at a Eurogroup meeting in Dublin Friday to agree with the troika on the number of civil servants that will lose their jobs over the next two years.

Eurozone finance ministers also approved a 10-billion-euro bailout for Cyprus, although several national parliaments, including the German one, still have to agree to the package.

Kathimerini understands that Finance Minister Yannis Stournaras was pressured by a number of his colleagues, especially Germany’s Wolfgang Schaeuble, to settle the matter of the civil service overhaul as quickly as possible so that the next loan tranche of 2.8 billion euros, originally due in March, can be released as soon as possible.

Alternate Finance Minister Christos Staikouras continued talks with the troika in Athens Friday and sources suggested that the two sides were close to an agreement on the number of public servants that would fired this year and next.

In total, 25,000 people will be placed in a labor reserve or a mobility scheme, which will lead to 12,000 being made redundant by the end of 2014. It is likely that 2,000 of those will be sacked this year and 10,000 next year.

Eurogroup president Jeroen Dijsselbloem warned that Greece also needs to speed up its efforts in two other key areas of its adjustment program. The Dutch finance minister said that Athens had to to complete the recapitalization of Greek banks as quickly as possible and to avoid the creation of a financing gap in its program.

He said that as soon as the troika has completed its review, the Euro Working Group will meet to decide on the disbursal of the next tranche. Greece hopes this will happen before the end of the month.

The head of the European Stability Mechanism, Klaus Regling, said that apart from March’s sub-tranche, Greece is also due to receive another 7.2 billion euros for the bank recapitalization program.

Meanwhile, Cyprus is expected to receive its first bailout installment in May after eurozone finance ministers approved its loan terms.

“The program will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years,” the Eurogroup said in a statement, which called on Russia to reach an agreement with Nicosia over improved terms on an existing 2.5-billion-euro loan and outlined plans for international auditors to check whether anti-money laundering rules are being implemented on the island.

It was also clarified Friday that reports suggesting Nicosia would ask for more financial assistance were wide of the mark. European Commission sources told Kathimerini that the Cypriot government had asked for technical assistance to help it absorb structural funds.

Cypriot government spokesman Christos Stylianides said there was no question of a further haircut on deposits, despite the troika’s debt sustainability analysis showing that Nicosia could need a total of 23.5 billion euros by the end of 2016, rather than the 17 billion originally thought.

“The 23.5 billion euros, which the European Commission assessment refers to, has already been acknowledged and evaluated in the final draft of the loan agreement, which is in the Eurogroup decision,” Stylianides said in Nicosia.

European Economic and Monetary Affairs Commissioner Olli Rehn played down the larger figure in the debt sustainability analysis.

“Whoever says that Cyprus’s financing needs have increased to 23 billion euros and that 10 billion is not enough is mixing apples and pears and ending up with orange juice,” he said.

Rehn argued the 23.5 billion euros was “gross financing” that took into account “additional financial buffers to allow for unexpected fiscal developments.” He admitted that he could not predict if the economic contraction in Cyprus would be 10, 12.5 or 15 percent.