Split Emerges Over Cyprus Bailout Package

Cyprus is in urgent need of money from the euro rescue fund, but the troika responsible for the bailouts is split over how it should be structured. The IMF is worried that the country's debt load is not sustainable.
When euro-zone finance ministers meet in Brussels on Monday, a welcome guest will be missing. Christine Lagarde, 57, the French managing director of the International Monetary Fund (IMF), is currently unwilling to discuss giving aid money to ailing euro-zone member Cyprus. For some time now, the Americans in particular have been eyeing the IMF's involvement in Europe with suspicion, causing the Frenchwoman to hit the brakes time and again. "I have no mandate for that" is a statement that the euro-zone finance ministers have heard only too often from Lagarde.As such, it remains to be seen whether the IMF will ultimately participate in a loan program for Cyprus. A number of countries, Germany first and foremost, have said that IMF participation is crucial. The statutes of the European Stability Mechanism (ESM), the euro zone's €700 billion ($931 billion) permanent backstop fund, stipulate that the IMF must rubber stamp a country's debt sustainability before any cash can flow.
But this time around, the IMF is hesitating. A member of the troika which is currently negotiating the bailout deal with the Cypriot government, the IMF has an entirely different notion as to how the program should look.

Opposition candidate ahead in Cyprus presidential race: poll

The main opposition candidate, Nicos Anastasiades of the right-wing Democratic Rally Party, is leading the race to become Cyprus's president, an opinion poll showed on Friday, as 11 hopefuls submitted bids for the February 17 election.

The winner of the vote, which may extend to a run-off on February 24, will be mandated to negotiate with prospective lenders for a multi-billion-euro bailout for the island.
Damaged by its exposure to Greece, Cyprus applied for a bailout from the International Monetary Fund and the European Union last year.
It is estimated that Cyprus needs up to 17.5 billion euros to recapitalize its banks and put the economy back on a stable footing. That amount is equal to the entire output of the Cypriot economy, meaning any bailout may not be sustainable.
"Our manifesto offers hope and prospects for the country through a national unity government," said Anastasiades, running more than 10 points clear of his closest rival according to the latest opinion poll.
In the survey for the state broadcaster, Anastasiades polled 38 percent compared with 23.7 percent for Stavros Malas, an independent backed by the now-ruling Communist party AKEL, and 19.7 percent for independent candidate George Lillikas.
Incumbent President Demetris Christofias, a communist whose tenure has seen economic demise and record-high unemployment at 14 percent, is not seeking re-election.
Conclusion of a bailout deal with lenders is awaiting the calculation of the precise recapitalization needs of Cypriot banks. Talks have also been overshadowed by concerns from some European nations, notably EU paymaster Germany, of an opaque banking system which may encourage money laundering.
German chancellor Angela Merkel, in Cyprus last week to lend support to Anastasiades's bid, said the island must move ahead with reforms [ID:nL5E9CB1RP].

Europe's Mounting Reluctance to Bail Out Cyprus

There is growing resistance in Europe to the planned aid program for Cyprus, because it would also benefit illegal Russian money parked in bank accounts in Cyprus. The government in Nicosia is willing to make concessions, but Brussels is demanding more reforms.

It was a long way to go to deliver a short message. German Chancellor Angela Merkel flew almost four hours last Friday to Cyprus, where she spent a few minutes campaigning for the conservative presidential candidate in the February 17 election, Nikos Anastasiades. Speaking in the city of Limassol, Merkel praised Anastasiades, saying that she had known him for a long time and valued his openness to change, and that the country urgently needed "structural reforms."fter smiling for the cameras, Merkel returned to wintry Berlin.

Her destination in the eastern Mediterranean has a smaller population than the little German state of Saarland, but that hasn't stopped it becoming one of the biggest trouble spots in global politics at the moment. The question of whether the government in Nicosia should be allowed to bolster its ailing banks with more than €17 billion ($22.7 billion) from Europe's bailout funds is dividing the euro zone, causing uncertainty in international markets and adding to the woes of the coalition government of Chancellor Angela Merkel, made up of her center-right Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the business-friendly Free Democratic Party (FDP). Now that the center-left Social Democratic Party (SPD) and the Green Party have announced their opposition to the plan, Merkel's coalition could for the first time fail to muster a parliamentary majority on an important decision relating to the euro crisis.
The financial woes of Cyprus are a thorny issue for the German government, the mood in global financial marks and, most of all, for Europe's bailout policy. Ever since last fall, when SPIEGEL published a report by Germany's Federal Intelligence Service (BND) on money laundering in Cyprus, it has been clear that an aid program for the country would also benefit Russian oligarchs who have deposited billions in assets from dubious sources on the Mediterranean island. According to the BND analysis, if Brussels released the requested aid money, German taxpayer funds could very well be used to protect the illegal assets of Russian business magnates.
This realization triggered hectic activities in various places. In Brussels, the Euro Group of euro zone finance ministers postponed its decision on the bailout program last week, while donor countries like Germany, Finland and the Netherlands voiced concerns. In Cyprus, the government is trying to show it's tough on tax dodgers and money laundering. "Cyprus is no tax haven," Finance Minister Vassos Shiarly insists in an interview with SPIEGEL.
The euro rescuers face a dilemma. On the one hand, they want to prevent the country from going bankrupt. On the other hand, they lack the support of a majority of member states for an aid program that would mostly benefit rich Russian tax fugitives.
The tricky situation is prompting European leaders to do what they always do when a crisis comes to a head: play for time. They want Nicosia to satisfy additional conditions in the fight against tax dodgers and economic criminals. At the same time, Brussels is hoping that current President Dmitris Christofias will be ousted in the February election.
It wants a change in government on the island to show the European public that the Mediterranean country is indeed prepared to clean up its act. Experts agree that, for decades, Cyprus has seen itself as a prime destination for honest and dishonest investors from around the world. Until now, someone who wanted a safe haven for his money could simply take a plane to Nicosia, because the country is an EU member and yet is lax when it comes to financial regulation, say German investigators.
Popular Destination for Russians
The Russians are particularly well of the island's attractions in this respect. Last year, once again, entrepreneurs from Moscow and St. Petersburg moved about $60 billion in assets out of the country, much of it through Cyprus. Several dozen oligarchs and financial sharks have set up offshore companies in Cyprus, where they can protect their assets, at very favorable tax rates, from the Kremlin-controlled Russian justice system.
The list of Russian investors in Cyprus is almost identical with that of the country's richest men. Together with a partner, Roman Abramovich, known internationally as the owner of some of the world's largest private yachts and London's Chelsea Football Club, controls his Evraz holding company through a Cyprus-based company, Lanebrook. The financial magnate and former presidential candidate Mikhail Prokhorov, who owns mining companies in Russia, registered Intergeo Management Ltd. in Cyprus in 2008. Magnate Vladimir Lisin, worth an estimated $15.9 billion, controls more than two-thirds of his most important company, a steel mill in Novolipetsk, through the Cypriot company Fletcher Holding Ltd.
Owners of other companies registered in Cyprus include Lisin's competitor Alexei Mordashov (worth $15.3 billion), nickel tycoon Vladimir Potanin ($14.5 billion) and oil baron Vagit Alekperov ($13.5 billion). There is also Suleyman Kerimov ($6.5 billion), a dubious investor who was interested in buying a three-percent stake in Deutsche Bank in 2008, and Internet czar and friend of Prime Minister Dmitry Medvedev Alisher Usmanov, who topped the list of Russia's richest men last year at $18.1 billion. Yelena Baturina ($1.1 billion), the wife of former Moscow Mayor Yury Luzhkov, who has been accused of corruption by the Kremlin, has also allegedly moved some of her assets through Cyprus.
The case of fertilizer magnate Dmitry Rybolovlev shows how closely intertwined Russian oligarchs are with the Cypriot financial system. More than two years ago, Rybolovlev increased his share in the Bank of Cyprus to just under 10 percent. This makes the Russian, whose assets are estimated at $9 billion, the biggest single shareholder in the Mediterranean country's most important bank.
In the 1990s Rybolovlev, now 46, developed Uralkali into the largest potash producer in the country in the Siberian region of Perm. In 1996, he was held in jail for 11 months on the suspicion he was involved in the murder of another businessman, although he was ultimately acquitted for lack of evidence. He acquired a $100-million estate in Palm Beach, Florida from American real estate tycoon Donald Trump in 2008. In 2011, Rybolovlev, a sports fan, bought the AS Monaco football club. He owns a $110-million yacht, and his exquisite art collection includes paintings by Modigliani, Van Gogh and Picasso.
But tax fugitives aren't the only ones drawn to the island. "A classic route for laundering illegal Russian funds first passes through offshore companies, in the Caribbean, for example, and then through accounts in Cyprus," says Mark Pieth, a Swiss criminal law expert and chairman of the Organization for Economic Cooperation and Development (OECD) Working Group on Bribery. He cites as an example the scandal surrounding Russian attorney Sergei Magnitsky, who in 2009 was tortured to death in a Moscow prison at the age of 37, apparently because he had uncovered a large-scale corruption case that the government was trying to suppress.
Russian government officials allegedly embezzled $230 million in conjunction with the affair, with some $30 million reportedly being sent abroad through Cypriot banks. Magnitsky's former employer, financial investor Bill Browder, who has spent years painstakingly investigating the murder and its background with a team of half a dozen employees, is convinced that the allegations are true. His conclusions prompted Switzerland to freeze bank accounts, and the United States to recently bar entry to Russian officials involved in the case, triggering sharp protests from the government of President Vladimir Putin. After charges were brought in July 2012, the Cypriot officials responsible for combating money laundering didn't respond for months, says Browder.
Cypriot investigators reject the accusations, saying that the country's attorney general initiated proceedings in the fall, and that they are still underway. But they also note that the investigation is complex.