The bill for Cyprus could be less than the 17 billion euros originally mooted last year, already small when compared with rescues for Greece worth some 380 billion euros ($496 billion), Ireland’S 85 billion euros, Portugal’s 78 billion and 41 billion for Spanish banks.
More than the final sum, it is the principle that none of the 17 eurozone states be allowed to default that was driving the talks, although the main participants were quick to play down the chances of a finished package overnight.
“I do not know,” said Eurogroup head and Dutch Finance Minister Jeroen Dijsselbloem when asked about how much money could be at stake.
But “I know what my main goals are — to make sure that there is stability in the eurozone and that there is a new sustainable growth path possible for Cyprus,” Dijsselbloem said as he arrived to chair the meeting, which began at around 1545 GMT.
“Those are the boundaries within which we have to find a solution,” he said.
German Finance Minister Wolfgang Schaeuble and his French counterpart Pierre Moscovici both said they looked forward to assessing reports on Cyprus by the Troika of the International Monetary Fund, the EU and the European Central Bank.
Schaeuble said the meeting would review the Troika reports, underlining that this was the first time ministers would have “substantive discussions” on Cyprus.
Moscovici said ministers “wanted a debt rescue programme agreed by end-March and we are within that timetable.”
“We will look at all the options on the table,” he said.
Amid doubt about the extent of the eventual contribution from the International Monetary Fund, its managing director Christine Lagarde stressed the need to get a watertight agreement above all.
“We don’t want a band-aid (solution). We want something that lasts, that is durable and sustainable,” Lagarde said on her arrival.
Cyprus, whose banks were badly exposed to their failed peers in Greece, sought a bailout in June 2012 but negotiations proved difficult, with the country hoping at one stage to get help from Russia with whom it has strong ties.
Cyprus Finance Minister Michalis Sarris reportedly flies to Moscow for talks Monday about extending a 2.5-billion-euro Russian loan payment due in 2016, and to discuss how Russia could contribute to a bailout package.
The new conservative government elected in February has brought fresh urgency to the rescue talks, which must first agree how much help to provide.
A bailout of 17 billion euros would equal the total annual output of the Cypriot economy and increase the country’s debt burden to what are deemed unsustainable levels, a key point for Lagarde and the IMF.
To reduce it to a more manageable level, a deal could require Cyprus to sell state-owned assets, hike taxes, especially its very low corporate tax rate of 10 percent, and make the banks’ depositors take some of the burden.
This debt ‘haircut’ or ‘bail-in’ is the most controversial option and has been bluntly rejected by Nicosia as risking a massive run on the banks which would sink its financial system and threaten the whole euro single currency.
A key sticking point for hardline lenders like Germany has been the island’s Russian connections and its banks alleged involvement in money laundering.
Alan Lemangnen at the Natixis investment house said he expected ministers would discuss a package of around 10-13 billion euros.
There should be progress but there remain several “stumbling blocks, including public debt sustainability, IMF and Russia participation, anti-money-laundering compliance… and a potential ‘bail-in” of Cypriot banks,” Lemangnen said in a note.
“All in all, the scenario of an overall agreement remains ruled out for now, and EU senior officials have already talked about a second extraordinary meeting next week,” he said.