Concern over Cyprus�s plea for a bailout

Published on the Malta Independent¸ issue Sunday¸ 13 January 2013

Prime Minister Lawrence Gonzi had a brief meeting in Berlin with German Chancellor Angela Merkel which was vividly reported in the press last Wednesday and hailed as an acclamation of the island’s economic progress .Indeed Merkel praised the islands’ “excellent” economic performance. It stands to reason that Gonzi ‘ s ego shot sky high and really and truly his government merits all the kudos that was showered upon it in Berlin. Speaking alongside Malta’s Prime Minister Lawrence Gonzi¸ Merkel praised Malta for having a financially sound policy and gave it as an example of stability despite the eurozone crisis. With the Nationalists in an election mode it comes as a blessing for the party when reminiscing that no Med Club countries were ever showered with such praise from the Iron Lady controller of the EU purse. Yes –on the contrary an obvious contender for the title of a laggard is undoubtedly Cyprus. Its bonds recently plunged to a three-month low after the International Monetary Fund allegedly demanded a Greek-style debt restructuring as a pre-condition for a bailout alongside a ‘hair-cut ‘on loans. In this article I want to analyse in more detail the reason why this Mediterranean country¸ much praised in the past as the chic island of Aphrodite with beautiful beaches and a healthy economy suddenly fell into the abyss as a bailout contender. The background history causing the sickness that engulfed Cyprus goes back a few years and of course it is mainly tied to huge loans linked to failed Greek banks that are now under extreme pressure because of Greece stagnant economy. All the while the huge loss suffered from non performing loans in Cyprus was temporarily compensated by massive inflows of Russian monies that have flowed to the island’s banks. Cyprus last year requested an EU bailout and it is estimated that close to €20 billion may be needed to tidy its financial problem. It is a fact that banking losses in Cyprus were partially compensated due to its close connection with Russian friends who for different reasons have found the sun blessed island as a tax haven for their secret hoards of oil and tax monies. In Berlin at the Gonzi/Merkel meeting the press asked the two leaders about Cyprus and its current request for an urgent bailout. Ms Merkel lost her smile when she uttered that there could be no special bailout conditions that did not include economic reforms like privatisation¸ which so far have been aggressively ruled out by the island’s outgoing President. In his comments Dr Gonzi said that privatisation was one of the key elements that had helped Malta move forward and make its economy more competitive ( pity some assets were sold at fire hire terms but alas let’s bygone be bygone ) . Even though the rescue sum requested by Cyprus is comparatively small there exist concerns that such funds may go to repay losses suffered by banks funded by Russian oligarchs who in the past allegedly conveniently used the island for money laundering. One member of the Merkel government admitted