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Cyprus FinMin to tackle money laundering claims at Eurogroup

02 March, 2013

Cyprus Finance Minister Michalis Sarris, hardly 48 hours in his new job, has already packed his bags and is headed for Brussels to prepare for Monday’s Eurogroup meeting where he will propose a new formula to allay EU concerns about money laundering.

Calming jittery nerves, especially from among his German, Dutch and Finnish Finance Ministers, would help pave the way for a conclusion for bailout talks wit the EU, the European Central bank and the IMF to release about 17.5 bln euros in rescue aid.

On Sunday, Sarris, who took office on Friday when a new pro-bailout government was sworn in, will have a series of separate meetings in the Belgian capital with his German counterpart Wolfgang Schäuble and high-ranking European Commission and Eurozone officials.

Sarris said he will propose an evaluation under the Central Bank of Cyprus, with the involvement of Moneyval, the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism. The process will be assisted by private experts, if necessary.

During the last Eurogroup session, on February 12, a decision was taken to conduct an evaluation of Cyprus’ legal framework against money laundering practices by a private company, in spite of the previous communist government’s objections.

Sarris said that decisions about the new formula and terms of reference of the evaluation were taken in Nicosia on Thursday.

The Minister said he believed the formula would be satisfactory, especially to those asking for a different method of evaluation and added that “in this way we will prove once and for all that these accusations [concerning money laundering in Cyprus] are unsubstantiated”.

Moreover, Sarris expressed Nicosia’s determination to proceed with the implementation of the Memorandum of Understanding (MoU), in order to bring results.

Apart from Schäuble and other EU counterparts, Sarris will also meet with the Head of the Troika delegation as well as with Thomas Wieser, Head of the Eurogroup working group.

Meanwhile, Wolfgang Schaeuble was quoted as saying in a newspaper interview that Euro zone finance ministers will not be rushed into a decision about a bailout for Cyprus when they meet in Brussels on Monday.

"In the Eurogroup (meeting of finance ministers) we will decide without rushing. Cyprus's problem is not easy to solve," he said according to an article due to be published in the German newspaper Tagesspiegel on Sunday.

"Cypriot banks are completely oversized in relation to the country's gross domestic product. This situation cannot continue. That's where the problem needs to start being tackled," he said.

Cyprus needs 6-9 billion euros to recapitalise its banks and 7 billion to repay loans and finance government operations. Such a rescue would increase the island's debts to around 145% of GDP, a level considered unsustainable.

Eurogroup’s Wieser, said on Saturday striking a deal to bail out Cyprus would be hard but an accord had to be negotiated by the end of this month.

Earlier this week Schaeuble and his French counterpart Pierre Moscovici issued a joint statement in which they welcomed the outcome of Cyprus's presidential election last Sunday, said talks must begin soon on an international bailout and urged a deal by the end of March.

Schaeuble said the Eurogroup was in close dialogue with Russia which he said was interested in a solution to Cyprus's problems as it is one of the country's creditors and a significant amount of deposits in the island's bank are from Russian investors.

Asked if Cyprus was systemically relevant for Europe, Schaeuble said: "The ESM (European Stability Mechanism) Treaty requires a clear and resilient justification as a prerequisite for giving aid to a country. We are waiting for that."

Klaus Regling, head of the ESM, told a German magazine on Saturday that deep reservations in some European states about using the euro zone's bailout fund for bank recapitalisation could ultimately mean the plan is abandoned.

Schaeuble praised the pace of reforms in crisis-stricken Greece and said Ireland and Portugal were on the right path even if they hadn't been able to return to the markets for good.

He called on Italian politicians to form a government quickly after a vote earlier this week left no party with a workable majority to.

Schaeuble said the euro zone crisis was not over yet and while the 17-nation bloc was "on the right path" and had made "great progress", there could be setbacks ahead.