* Gov't "liquid" until end-April *
The inability of the outgoing administration to conclude a timely bailout with the Troika of international lenders has fuelled talk, yet again, of a Cyprus exit from the euro zone, if a deal is not secured with EU paymaster, Germany.
But Europe and Russia are getting closer to a deal on how to involve Moscow in bailing out indebted Cyprus after Russian Prime Minister Dmitry Medvedev signaled willingness to help, an about-turn from the Kremlin’s earlier view that it would not give additional aid.
Medvedev was quoted by the German media as saying that Russia could provide support to Cyprus under certain conditions but that the island itself and the European Union would have to take the biggest share in a potential bailout.
The help could come in the form of an extension to the 5-year, 2.5 bln euro loan Moscow granted Nicosia in 2011.
Cyprus said earlier this month it had formally launched a request for a 5-year extension to repay that debt, a step that could take the immediate heat out of Nicosia's financial woes and that, according to a German government document, euro zone finance ministers support.
"We are not refusing to help under certain conditions. The conditions must be agreed first. Before that, there can be no money from us," Medvedev told the business daily Handelsblatt in an interview held on the sidelines of the World Economic Forum in Davos.
Some politicians, especially in Germany, have accused Cyprus of being a hub for money laundering and a shadowy tax haven.
Last week, European Economic and Monetary Affairs Commissioner Olli Rehn told Reuters it would only be fair for Russia to share part of the burden over Cyprus.
"I would think that as there is significant economic and financial activity by Russia and especially by Russian citizens and businesses in Cyprus, it would be quite fair that Russia is making a contribution," he said.
Medvedev said it was now important for the European Union to put clear demands to Cyprus.
"It would be better if nobody would lose anything. But most of all it is now necessary that the EU formulates its demands clearly on how the Cypriot economy should be cleaned up. Cyprus is more set than countries like Greece."
While European Central Bank board member Joerg Asmussen told Reuters last week that Cyprus could derail the euro zone despite its small size, others still have doubt that a default in the country, with a GDP of just 0.2% of the euro zone's output, could unsettle the bloc as a whole.
NOT CONVINCED
German Finance Minister Wolfgang Schaeuble is not yet convinced it can be seen as a systemic risk, which is a precondition for a bailout.
Preliminary estimates of a draft bailout deal put the bill at 10 billion euros for bank support. On that basis, its total bailout, including fiscal needs, could reach 17-17.5 billion euros, equivalent to the island's annual economic output.
Institute of International Finance Managing Director Charles Dallara warned policymakers against complacency when dealing with Cyprus.
"I would have thought we would have learned a powerful lesson from Greece that the relative or absolute size of an economy sometimes is irrelevant when it comes to its potential impact on the euro zone and indeed global markets," he said.
Meanwhile, the prospects of a country being forced to leave the euro zone have all but vanished since the middle of last year, according to a survey by research group Sentix.
The poll of 956 investors showed just 17.2% expected one or more states to leave the 17-state bloc over the next 12 months, down from 25% in December, and a high of 73% in July 2012, a month after the index began.
For Cyprus, the percentage fell by two percentage points to 7.5%.
Greece remained the country deemed most likely to exit the euro zone in the survey but the percentage of those who expect a "Grexit" within the next year fell to 13.95 from 22.5% in December.
FUNDS TO APRIL
Government spokesman Stefanos Stefanou said that Cyprus’ financing needs are covered until the end of April, confident that Russia will re-engage in the bailout talks with the European and IMF lenders.
Stefanou said that apart from public sector wages, the Republic’s finance needs included rolling over debt.
Finance Minister Vassos Shiarly said that total finance needs reached 1.8 bln euros, while a 3-month lona for 1 bln euros is expected to be renewed.
Shiarly said that the government has covered all its running expenses for the first four months of the year, due mainly to the adjustment of the bailout terms as set out in the Memorandum of Understanding with the Troika of international lenders.
This, he said, will take Cyprus beyond March, when the final bailout terms and conditions will be signed with the European Stability Mechanism.
