Cyprus’ economy at a difficult point, says FinMin

Public funds will have reached their limit by the end of the month, Georgiades told MPs, adding that the government has no alternative but to proceed with the implementation of the adjustment programme.

At the same time he stressed that staying in the euro zone and the EU is not under discussion.

A potential exit of Cyprus from the euro area would mean a multiple ‘haircut’ not just of deposits in the two largest banks but also of the economy as a whole, he said, warning that the standard of living would backslide to what it was centuries ago.

“It’s time to correct mistakes made in the past”, he pointed out, adding that “it’s time to ‘pay the bill’ ”.

Georgiades said the government has issued instructions to ministries to prepare anew their budgets on the basis of the current economic realities. All spending provisions will have to be processed and justified, he stressed.

Referring to ongoing procedures as regards the recapitalization of the Bank of Cyprus, the island’s largest bank, he said the government’s aim is for all necessary processes to be completed as soon as possible so that a new Board of Directors and management can be appointed and capital controls, in place in recent weeks, can be relaxed.

The Minister of Finance further said that the government is preparing a plan which will go beyond the adjustment programme with a view to encouraging economic activity.

Excluded from international markets, Cyprus applied in June 2012 for financial assistance, after its two largest banks sought state aid, following massive write downs of their Greek bond holdings amounting to €4.5 billion or 25% of the island`s GDP, as a result of the Greek sovereign debt haircut.

The government concluded a deal with the Troika of international lenders, which needs to be ratified by national parliaments and the Eurogroup. The Eurogroup reached an agreement with the Cypriot authorities on the key elements necessary for the macroeconomic adjustment programme.