Cyprus

When the eurozone financial crisis was still unfolding in early 2011, a senior German official speculated on the most worrying problem ahead, the Financial Times reported. “Cyprus,” he said, rather surprisingly. Some people might think it was too small to endanger the stability of the eurozone. But “its banking sector is overblown and it’s heavily exposed to the crisis in Greece. It could be a nightmare to resolve.” The divided island, half-in and half-out of the EU, is still on the German radar. But now the nightmare is a reality.

A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign bonds, according to a confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers, the Financial Times reported. The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout.

Euro zone finance ministers will discuss on Monday a Cypriot proposal to order an independent report on whether the country is fully complying with laws against money laundering, a senior EU official said, Reuters reported. The report would be a response to German and others' concerns that Cyprus, which asked the euro zone for financial help last June, has been a tax haven for rich Russians.

Many congratulations to Stephen Fidler, who has managed to get some actual news in Davos: EU economics commissioner Olli Rehn went on the record telling him that Cyprus is going to have to restructure its debt — just two weeks after ruling such a thing out, Seeking Alpha reported. That might come as little surprise, given that Cypriot banks were loaded up to the gills with Greek debt, and Greek debt suffered a 70% haircut.

The euro zone is not considering a debt restructuring for Cyprus, the EU's top economic official was quoted on Friday as saying, as the heavily indebted island struggles to negotiate an international aid deal, Reuters reported. Cyprus applied for a financial rescue last June after its banks suffered huge losses on the EU-approved writedown on Greece's debt. But it has so far failed to persuade its European partners to sign off on the package, given concerns the level of the island's indebtedness means it would be unable to repay the aid without further concessions from international lenders.

Cyprus's hopes of agreeing a eurozone bailout were thrown into fresh confusion on Wednesday as German politicians from across the spectrum warned that the aid package could be vetoed by the Bundestag, The Guardian reported. Angela Merkel, the German chancellor, is taking a hard line on Cyprus, saying the country must agree to wideranging economic reforms and privatisations before she would support a bailout. Negotiations between the Cyprus government and international lenders have stalled, with the Communist president, Dimitris Christofias, refusing to accept asset sales.

Euro-zone member state Cyprus badly needs a bailout, but the International Monetary Fund is demanding a debt haircut first, according to media report, Spiegel Online reported. The resulting standoff with Europe has delayed the country's badly needed aid package. To ward off insolvency, Nicosia has raided the pension funds of state-owned companies. Cyprus did its part on Wednesday night. The country's parliament approved a 2013 budget which included far-reaching austerity measures so as to satisfy the conditions for the impending bailout of the debt-stricken country.

Cyprus could default on loan payments due this month unless it can reach an agreement on a bailout with international lenders within days, a government official said on Monday, The Telegraph reported. "If in the coming days the state is unable to secure €250m to €300m [£244m), then the state will proceed to default on payments," finance ministry official Christos Patsalides told a parliamentary committee. Patsalides said the government had no "plan B" if it fails to reach an agreement on a bailout, AFP reported.

International lenders will resume bailout talks with Cyprus on Friday, authorities said, in an attempt to secure badly needed financial aid by the end of the year for an island exposed to Greece's debt meltdown, the Irish Times reported. A team representing the lenders, known as the troika, would arrive tomorrow and talks would resume on Friday, Cypriot government spokesman Stefanos Stefanou said in a statement. He said the aim was to "secure an agreement on the programme for a loan" to Cyprus.

The second half of 2012 was supposed to be Cyprus’s time to shine. For the first time, the European Union’s third-smallest member state by population, just behind Malta and Luxembourg, is assuming the bloc’s rotating presidency – a perfect opportunity to show off its sandy beaches and get some issues that are close to its heart, such as an integrated maritime policy, on the EU’s agenda.