FINANCE Minister Charilaos Stavrakis yesterday rubbished suggestions that Cyprus was following Greece’s course to ruin.
“Cyprus is not in danger and is not on the verge of collapse as some claim,” the minister said. He was speaking as a delegation from ratings agency Moody’s was on the island to review the economy.
Stavrakis said Cyprus and Greece’s economies were fundamentally different.
Greece has a public debt of 160 per cent (of GDP) while Cyprus’ is 60 per cent, and Greece has an 11 per cent deficit compared with Cyprus’ 4.5 per cent, the minister said.
He added that unemployment in Greece has reached 15 per cent while in Cyprus it was seven per cent and “Greece’s growth rate is negative while Cyprus’ is positive”.
Moody’s lowered Cyprus’ sovereign bond rating two notches to A2 in January, citing concerns over structural problems – ballooning state payroll and unsustainable state pensions system – in the economy and exposure of Cypriot banks to indebted Greece. It also lowered the ratings of banks.
Ratings agencies are concerned that Cyprus would not be able to sustain a potential Greek default.
In May, the agency put Cyprus on review for possible downgrade, citing the banking sector’s large size and exposure to Greece.
It followed a similar move in Greece, which was eventually downgraded early this month.
The minister did not rule out a new downgrade but he reiterated that banks were “robust and have adequate liquidity”.
Stavrakis played down suggestions that the government will not be able to raise around €4.7 billion in 2012 to cover maturing bonds.
The yield for the 10-year bonds rose to 7.5 per cent.
He said the debt was in fact closer to €3.0 billion, with €2.0 billion held by Cypriot banks.
“If they renew maturing bonds then two-thirds of borrowing needs are covered,” the minister said.
He added that the government has €400 million in deposits – from previous borrowing – and was in touch with Russian banks for potential long-term borrowing.
DIKO vice chairman Nicolas Papadopoulos had suggested that Cyprus will not be able to raise the necessary money because the international markets would not lend to the island.
He said no country has exceeded the 7.5 per cent interest mark without entering the support mechanism soon after.
“We will follow Greece’s route. We have a small window of opportunity until July 15 when parliament closes to convince markets, ratings agencies, those who will lend us, that we are prepared to solve our structural problems. We have not done that so far,” Papadopoulos said.
The minister said the government’s proposals on the pension system were ready and would be submitted to unions in the next few days.
