Cyprus and Troika could agree on a 1st draft Memorandum

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The first draft of a memorandum between the government and the Troika (European Commission, European Central Bank, International Monetary Fund) could be agreed during the next visit to Cyprus by the Troika, Finance Minister Vasos Sharly said on Monday.

Speaking during a press conference, in Nicosia, the Minister said that consultations with the Troika continued in August via teleconference to exchange views on all issues of interest and are at a very advanced stage.

The Minister said the Troika has sought clarifications on certain issues and it is expected that these will be clarified in the next couple of weeks.

The government has agreed to talk with the Troika after mid-September, due to the heavy agenda of the Cyprus EU Presidency. A Eurogroup meeting and an informal ECOFIN meeting are expected to take place in Nicosia between September 14 and 15.

The Troika visited Cyprus twice, after the government announced on June 25 that it formally requested aid from the EU bailout funds.

The Minister stressed that the state can cover its short-term financing needs until October.

Furthermore, Sharly said that the state continues to fulfill its obligations and meet the deadlines without any problems, referring to the repayment in August of 450 mln euros to the banks.

He added that similar obligations in September, worth 380 mln, will also be met without problems.

Sharly said planning for the past few months and the months ahead has been such that would allow the government to manage finances without any particular problem.

He explained that the payroll of civil servants is not included in these figures.

“It looks as if there is sufficient trust – in spite of problems. The banks continue to finance the government or to provide new financing packages,” he said.

Replying to questions about the consultations with the Troika, the Minister said that on certain issues the government positions differ to those the Troika maintains.

He said that so far, the government acknowledges the Troika positions but takes into consideration domestic and social sensitivities, including the cost of living allowance, the pension scheme or other such matters.

“When the time comes to draft the final document, the two sides will come to an agreement,” he added.

Asked about the fiscal deficit in 2012, he said that initially the projection was that it could be restrained at 3.5%, however due to the worsening global economic situation it is now projected to be in the range of 4.5%.

The objective, he said, is to present a package of measures which would reduce the deficit by one percentage (150-200 million euro), which will be tabled to the House after its summer recess.

“The financial situation internationally, in Europe and in Cyprus has worsened. We expect that the fiscal deficit will be in the range of 4.5% instead of 3.5%. However, if the measures which we will table to the House are approved, the deficit will be reduced to its initial projection of 3.5%,” the Minister pointed out.

This figure, he added, is not too far from the 3% fiscal deficit, which Europe would like its members to achieve.

He added that according to available data, fiscal deficit in the first seven months of 2012 stands at 3.4%, adding that results in August, September and October are expected to be better.

Asked about a loan Nicosia has requested from Moscow, the Minister said Cyprus is ready to provide any data requested, adding that the loan request is being considered.

Replying to a question on the Cyprus Popular Bank, one of two Cypriot banks, which has requested state support, Sharly noted that its Board will study thoroughly a report prepared by outside experts and subsequently recommendations will be made on the basis of this report.

Cyprus, which concluded in 2011 a 2.5 billion EUR loan with the Russian Federation, has requested a new loan agreement. Excluded from the international capital markets as of May 2011, Cyprus on June 25 applied to the EFSF for financial assistance to bailout its two main banks, Bank of Cyprus and Cyprus Popular Bank, which have been severely hit by the Greek sovereign debt haircut and to cover its refinancing needs.