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Recapitalization of Cyprus banks according to baseline scenario

01 February, 2013

Recapitalization of Cyprus banks according to baseline scenario, says government
Nicosia, Jan 31 (CNA) - The recapitalization of Cyprus banks should be done according to the baseline scenario of Pimco’s due diligence and not the adverse scenario, Government Spokesman Stephanos Stephanou said here today. He further called on everybody to remain calm, ahead of Pimco’s final report.

In statements to the Press, Stephanou noted that the government’s position is well known and has been outlined in a recent letter handed by Cyprus President Demetris Christofias to European Commission President Jose Manuel Barroso.
“We ask for the adoption of the baseline scenario for the recapitalization of the banks,” Stephanou said. He added that in case the adverse scenario prevails, capital needs might be covered directly by the European Stability Mechanism (ESM), once the Single Supervisory Mechanism is in place.

Moreover, he said that the government is able to persuade its European partners over the necessity to assist to Cyprus, on the basis of European solidarity and because the situation in Cyprus is a result of the European decision to cut Greek debt.
Excluded from the international capital markets since April 2011, Cyprus applied on June 25, 2012, for financial assistance after its two largest banks sought state support following massive losses as a result of the haircut of the Greek sovereign debt.

The Cypriot programme is estimated to reach 17.5 billion euro, which practically equal to the island’s GDP. The Cypriot authorities and the Troika have agreed on a four-year adjustment programme providing for measures totalling 7.25% of GDP (1.29 billion euro) for the period of 2012-2016. The Cypriot package cannot be agreed as capital needs of the banking sector have yet to be determined by US investment consulting firm ‘Pimco’.