Cyprus tells FT: You got it wrong, there’s no reversal of MOU

Cyprus government spokesman Christos Stylianides has written to the Financial Times, in response to Peter Spiegel’s article issued on Tuesday, regarding President Anastasiades’ letter to European leaders last week asking for softer treatment on the bailout terms.
The letter is “in no way aimed at a reversal of the memorandum of understanding, as the article reports,” Stylianides said in the letter to the newspaper’s Brussels bureau chief.
He added that as it has been favourably observed by the EU institutions, Cyprus, in fact, applied most of the terms of the memorandum, even before the agreement was signed and sealed.
Cyprus secured a deal from the Troika of international lenders – EU, ECB and IMF – while a bail-in of about 10 mln euros is aimed at recapitalising the island’s biggest bank, the Bank of Cyprus, that was forced to absorb second-largest Popular Laiki and its multi-billion euros in debt.
“Allow me to clarify that the Government is fully committed to implement all the provisions of the MoU, with the aim of achieving its objectives. Furthermore, I would like to emphasize that it is not true to state, as reported in the said article, that failure to adequately prepare for the bail out impact is partly the Anastasiades government’s fault, which voted down the original plan [on March 15], before accepting a similar deal nine days later,” he noted.
In fact, the Government did not vote down the original plan, the spokesman said. "It submitted, as it was duty bound, the deal it had reached with its European partners to the Cyprus House of Representatives and it is the House that voted against it, in the first instance. The objective of the President’s intervention [and letter] was to bring to the attention of our European partners important issues, that are inhibiting the achievement of the objectives of the MOU and initiate a dialogue with a view to finding the best way forward", he stressed.
“He has reiterated that the Cyprus government is fully committed to applying the terms of the memorandum and has already embarked on that road, because it is convinced that the full and transparent implementation of the agreement is the only way the economic challenges can be addressed. There is no attempt to renegotiate the MOU,” he concluded.
In his letter, Anastasiades urged EU leaders to reconsider the bail-in plan that was “implemented without careful preparation” and suggests an alternative solution to the financing needs of the Bank of Cyprus that has been burdened with Laiki’s debts.
“Instead of addressing the issue of severe liquidity strain on Cyprus' mega-systemic bank through a long-term sustainable and viable solution, the Troika partners seem to have chosen the path of maintaining strict capital restrictions. Artificial measures such as capital restrictions may seem to prevent a bank run in the short term but will only aggravate the depositors the longer they persist.
“The success of the programme approved by the Eurogroup and the Troika depends upon the emergence of a strong and viable BOC. I urge you to support a long-term solution to Bank of Cyprus' thin liquidity position. Such a solution will re-instate depositor confidence in the banking system and will allow the full functioning of the economy away from restrictive measures and capital controls.
“A possible long-term solution could be the conversion of part of Laiki's ELA liability into long term bonds and the transfer of these bonds and corresponding assets into a separate vehicle. Another solution could be the reversal of the Eurogroup decision in relation to the merger of Good Laiki (carrying the EUR 9 bln ELA liability) into Bank of Cyprus. In any case, the BOC should exit resolution status without any further delays and should be granted eligible counter-party status by the ECB,” Anastasiades concluded.