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* Troika bailout talks “less challenging,” says Fitch *
President-elect Nicos Anastasiades appointed three key figures to the most crucial posts of his new Cabinet that takes charge on Friday and has set them on a mission to calm jittery nerves within the European Union, primarily EU paymaster Germany, regarding bailout talks with the Troika and sustainability of the Cyprus economy.
His landslide victory in Sunday’s second round of the presidential elections has given 66-year-old Anastasiades a mandate to conclude talks with Eurozone partners and the IMF to secure a mega loan of about 17.5 bln – as much as our GDP – as soon as possible to pay down a runaway public sector deficit, roll over international loans and rescue the main banks.
The seventh president of the Republic, who will be sworn in at the House of Representatives on Thursday, also has to deal with record unemployment, a slump in property values, two years of recession, further austerity measures and reform in the public sector, and transparency in the financial services sector.
However, the recent finds of offshore natural gas resources and the licensing of six gasfields to international energy giants, is expected to act as a catalyst in reviving stalled talks over the island’s division and Turkey’s occupation of the north, with Germany’s Chancellor Angela Merkel suggesting in Ankara this week that “Cyprus should not be ignored”.
This is where diplomacy comes in, especially by a person who has become a familiar and welcome figure within the EU’s corridors of power, who will face angry criticism within Germany about transparency surrounding billions of euros in Russian bank deposits.
After a decade in Brussels and Strasbourg, EuroMP Ioannis Kasoulides returns to the Foreign Ministry to head the diplomatic service tasked with mending the island’s credibility. However, the deputy chairman of the European Popular Party may have set his sights on a Commission seat next year when Education and Youth Commissioner Androulla Vassiliou completes her term, especially as the EPP will want to have a greater say within the EU’s executive branch.
The biggest challenge is the poor state of the economy and a fear by international lenders that Cyprus will not be able to live up to its end of the bargain and reduce the huge public sector deficit.
For that reason, Anastasiades has already said that after five years, Michalis Sarris will return to the Ministry of Finance, to take the hot seat and conclude negotiations with the Troika as soon as possible to ensure that state coffers are refilled. At the same time, 2010 Economics Nobel laureate Christophoros Pissarides will head the new Economic Policy Council, that will become the think tank to undertake urgent measures to revive growth and encourage foreign direct investments, and to conceive the policies that will transform Cyprus into the business and financial centre it has aspired to in the past but has not yet achieved.
Sources at the Democratic Rally party suggest that President-elect Anastasiades will announce his full Cabinet of proven politicians and technocrats, probably by Wednesday, having concluded bargaining with junior coalition partner DIKO (Democratic Party), with the main concern being to appoint fresh faces to key government posts.
The European Party (Evroko) that chipped in to elect Anastasiades, is also expected to get a Cabinet post, while the Greens’ Ioanna Panayiotou may be offered the Environment Commission, albeit with greater executive powers.
The socialist Edek, that threw its support behind independent Yiorgos Lillikas, and the communist party Akel, are not expected to take part in the ‘national salvation’ government.
A novelty will the appointment of seven new Deputy Ministers, who will not be in the Cabinet, but will lessen the burden on the Ministers and will assist by taking more of the burden from international responsibilities.
FITCH: LESS CHALLENGING
The best news for the new president came from rating agency Fitch, saying that Anastasiades could make the country’s negotiations with the Troika for a rescue package less challenging than under the outgoing president.
“The stance of the new Cypriot president-elect and his government could make the country`s negotiations with the Troika for a rescue package less challenging than under the outgoing president,” Fitch said.
“Nicos Anastasiades has stated his intention to secure timely financial support, and now arguably has a mandate to conclude negotiations. He has already been building relations with leaders of key European partners, including Germany,” Fitch said.
The agency added however that “despite his overwhelming victory in the weekend’s elections, he will face the same policy challenges as his predecessor, and there is still lingering uncertainty about the timing and details of an EU rescue programme.”
Recalling that Fitch downgraded Cyprus to B/Negative in January, mainly because of its belief that bank recapitalisation costs are likely to be higher than previously thought, the agency noted that it expected that the authorities will reach agreement with the Troika on an official financing programme in time to pay a 1.4 bln bond redemption on 3 June.
Fitch also noted that it expects that the Cypriot government to privatise some state-owned enterprises as part of a final agreement with the Troika, “but there is uncertainty about how much debt relief this would achieve.” Anastasiades pledged in his campaign that he would not privatise the likes of state telco Cyta and electricity utility EAC, but left open prospects of selling off all or part of other state assets, such as the Ports Authority and a controlling stake in loss-making Cyprus Airways.
Fitch added however that “we would expect any restructuring of bank debt to be restricted to junior debt holders, though banks are mostly deposit financed, which limits the potential impact.”
