Terrifying scenarios on Cyprus banking sector capital needs must stop

Government Spokesman Stephanos Stephanou called on Sunday for the termination of terrifying scenarios and speculations concerning the amount needed for the recapitalisation of the banking sector, maintaining that in any case the Cypriot public debt will be sustainable.

Stephanou`s remarks came one day after the delivery of the final report by US investment consultancy firm, Pimco, on the capital needs of the Cypriot financial sector, as part of Cyprus` application for financial assistance from the European Stability Mechanism. Press reports suggest that in its report, Pimco estimates that the capital needs reach approximately 7 billion euro in the baseline scenario and just over 10 billion in the adverse scenario.

In the case of adopting the adverse scenario, the Cypriot financial assistance package will exceed 17.5 billion euro which is roughly equal to the island`s GDP, raising concerns over the sustainability of the island`s public debt. Politicians have voiced concerns that in case Pimco`s methodology is adopted, there will be a debt burden of 10 or 12 billion euro for the recapitalisation of the banking sector.

Stephanou dismissed these concerns, reiterating that the government believes that Cyprus` public debt is sustainable.

He noted that "the government, along with the Central Bank of Cyprus, has a plan to address challenges. Our view is that Cyprus` public debt is sustainable and we are working on that," he added

Stephanou reiterated that if Cyprus` EU partners insist that the Cypriot public debt is not sustainable, the government proposes an alternative solution, which provides for the recapitalisation of the Cypriot banks according to the baseline scenario, while the additional capital required in the adverse scenario could be given directly by the European Stability Mechanism.