Τρία
σενάρια-επιλογές για την εξυγίανση της κυπριακής οικονομίας,
εμπεριέχονται σε απόρρητο έγγραφο που απέστειλε η Ευρωπαϊκή Επιτροπή
προς το Προεδρικό, τον Φεβρουάριο, λίγο πριν τις Προεδρικές Εκλογές.
Σημειώνεται ότι και στις τρεις επιλογές περιέχεται το κούρεμα
καταθέσεων.
Το Sigmalive εξασφάλισε το έγγραφο,
το οποίο δημοσιεύει σήμερα και η εφημερίδα Πολίτης με την αποκάλυψη ότι
βρισκόταν στο Προεδρικό από τον Φεβρουάριο, πριν τις Εκλογές.
Το περιεχόμενο του εν λόγω εγγράφου είχε αποκαλυφθεί από τους Financial Times ήδη από τις 10 Φεβρουαρίου του 2013.
Οι τρεις επιλογές που δίδει η ΕΕ, σύμφωνα με το έγγραφο:
Απορρίφθηκε: Πλήρες κούρεμα καταθέσεων και διασφάλιση του ποσοστού των 16,7 δις, όσες και οι ανάγκες της Κύπρου.
Απορρίφθηκε: Μερικό κούρεμα καταθέσεων και μερικό
κούρεμα του κρατικού χρέους. Διαπιστώθηκε ότι το μεγαλύτερο μέρος του
κρατικού χρέους το κατείχαν οι τράπεζες και τα ΣΠΙ και ως εκ τούτου,
εγκαταλείφθηκε ως ιδέα διότι, αν εφαρμοζόταν θα δημιουργούνταν
περισσότερες ανάγκες ανακεφαλαιοποίησης και θα τίθετο ζήτημα νέου
κουρέματος.
Εφαρμόστηκε: Μερικό κούρεμα καταθέσεων και πακέτο φορολογικών μέτρων, η πλειοψηφία των οποίων είχε κλειδώσει με το μνημόνιο του Νοεμβρίου.
Aυτούσιο το έγγραφο
Strictly confidential
Commission Paper on Cyprus
Parameters for a programme for Cyprus
I. Introduction
The financial and economic situation in Cyprus is fragile. Ideally
an agreement on financial assistance should be reached shortly after the
Presidential elections in Cyprus. To ensure an expedient process after
the election it is important that international lenders reach an
agreement on the key parameters for a future Programme as soon as
possible. This note outlines the key policy choices.
II. Problem description
The due diligence exercise carried out by Pimco has confirmed that
the Cypriote banks have large capital needs (around 10 billion, or 60
per cent of GDP). If the costs for recapitalization are fully born by
the State debt will rise to around 145 in 2014, raising concerns about
debt sustainability.
In relative terms the official financing envelope would be very
large (around 17 billion, close to 100% of GDP). In some member states
political support for a Programme is low because of allegations over
money laundry and (unfair) tax competition. In the medium to long run,
the Cypriot economy may benefit from recent gas finds. At present the
benefit of this cannot be quantified, but represents upside to debt
sustainability.
The draft MOU envisages fiscal consolidation measures of 7% of GDP
in the period up to 2016 and a nearly full bail in of holders of junior
debt bank debt (1,4 billion, 8% of gdp). Even though implementation of
the MOU is believed to restore debt sustainability in the long run,
doubts have been expressed about the ability of Cyprus to access market
finance towards the end of the programme [it is important to make it
explicit when CY has to re-enter the market and this is not at the end
of the programme].
III. Key policy choices
Without any further measures the debt to GDP at the end of the
programme (2015) will be around 140%, to decline further to 125% of GDP
in 2020. The December Euro group has indicated that the debt to GDP
ratio needs to be significantly improved to ensure debt sustainability.
A first policy question is what should be the appropriate debt to
GDP level. It has been suggested by some that the target level for debt
to GDP should be no more than 100% of GDP by the end of the programme
period (2015). Others have argued that a debt level of 100% in 2020
should be sufficient.
A second policy question relates to the desired speed of the
downsizing of the banking sector. Should the full adjustment take place
within in the Programme period or would a longer period of deleveraging
be acceptable?
A third policy question relates to the level of risk tolerance. The
different approaches to resolution come with different risks for Cyprus
and the broader Euro area.
Two broad options have been explored. The key difference between the
two options is the speed of the deleveraging and the initial allocation
of losses.
IV. Options
A. Full bail in: fast deleveraging
In the full bail in scenario junior debt holders and uninsured
depositors of the two biggest banks are fully bailed in. As a result of
this the public support for banks can be reduced to 1,5 billion. Output
losses however will be considerably higher than under the MOU scenario
[…% of additional output drop]. As a result the net improvement of the
debt will be less. Debt to GDP at the end of the Programme (2015) is
estimated at 108 per cent, and 100% in 2020. The financial sector will
shrink very fast, significantly reducing the contingent liabilities of
the state. Combining this option with a restructuring of the sovereign
debt, would reduce the debt ratio to 77% in 2015.
In this scenario the burden is shared between the Cypriote
taxpayers, depositors and holders of sovereign debt. To the extent that
depositors and creditors are foreigners the costs are partially
externalized. This effect is most pronounced in the bail in plus psi
variant and much less important in the simple bail in variant. In the
latter case the initial benefits of the burden sharing are to a large
extend eroded by additional output and wealth losses.
The risks associated with this option are significant. The bail in
option is complex and requires a high degree of coordination between
many players domestically and cross-border, with very different
interests. Risks of leaks are significant, which could trigger a
premature collapse. Uninsured depositors will incur steep losses, in
particular if combined with restructuring of sovereign debt. The
short-term impact on output can be expected to be significant, implying a
deeper recession during the Programme period. The longer-term impact on
growth will depend on the speed with which financial and economic
stability can be re-established and how quickly Cyprus would overcome
the rapid downsizing to its financial services industry and related
business services and regain sustainability growth.
The two banks have systemically important operations in Greece. To
avoid spill overs Greece should be ring fenced. This would require
subsidiarization of the branches of the Cypriote banks. This is complex
and comes at a cost of minimum additional cost of 1 billionAS and it
would require a transfer of ELA. It may not be possible to reach
agreement on who will bear these costs (Greece or Cyprus). Based on
recent market commentary Ccontagion beyond Greece cannot be excluded is
likely despite limited exposure on Cyprus and would work via doubts
about the safety of senior debt or deposits, if investors realise that
these instruments are candidates for bail-in. Especially in the
periphery of the euro area, the recently gained confidence, as reflected
in a decline in interest rates, may would evaporate.
A sine qua non for the implementation of the bail in option is a
very clear commitment from the ECB that it stands ready to provide the
necessary unlimited liquidity to Cypriote banks once they reopen. There
is a significant risk that the bail in option will result in the
imposition of deposit withdrawl restrictions and capital controls by
Cyprus. This could have a very negative impact on the financing
conditions for other peripheral countries.
B. Partial bail in: moderate deleveraging
In the partial bail in scenario junior debt holders will be fully
bailed in. Depositors will not be bailed in, but will pay additional
taxes. The following measures are added to the draft to reduce the debt
faster compared to the baseline:
1. Privatisation programme [list of major assets would be useful
here]: 1,2 billion including signing fees in 2015 and 1,5 billion
cumulative in 2020 (8% of GDP in 2020);
2. Increase statutory rate of corporate income tax to 12,5%: 135 million pa (6% in 2020)
3. Increase withholding tax on capital income to 28%: up to 160 mn pa (7% in 2020)
4. Extend maturities on the Russian loan (repayment in 5 instalments
from 2021 to avoid a hump resulting from the amortisation of Cypriot
bonds in 2020) and lower interest to 2% from 4.5%: started: 62,5 million
pa (4% in 2020, tbc)
In this scenario the debt to GDP ratio would be reduced to around
130% in 2015 and 100% in 2020. There would be significant deleveraging
of the banking sector, but at a slower pace than in the bail in
scenario. Over a period of 10 years the banking sector would be
gradually downsized from about 750% of GDP in 2012 to around half that
level which is the euro area average. Subsidiarization of the branches
in Greece would also in this scenario be sought to reduce the tail risks
from Greece (sell-off of Greek operations would reduce banking sector
assets by around [100%] of Cypriot GDP).
In this scenario there is some burden sharing with creditors
(bailing in of junior debt) and externalisation of costs, notably via
the reduction on the interest on the Russian loan and the increase in
the corporate income tax. Compared to the bail in option the initial
allocation of the burden is more biased towards the Cypriote tax payer.
The loss of income and financial wealth however is significantly less
in this scenario than in the bail in scenario, which would limit the
adverse impact on growth during the Programme period and beyond.
The contagion and implementation risks associated with the tax
measures are low (both CIT and withholding tax already exists), even if a
steep increase in the withholding tax may have some impact on savings
and thereby slightly erode the tax base. The extension of the maturity
and the reduction of interest rates on the Russian loan require high
level negotiations. Considering the alternatives – and the signal that
Russia is willing to help – this should be achievable.
V. A third way?AS
All options presented have important drawbacks. The full bail in
options come with very significant operational and financial risks,
while the partial bail in option puts a significant additional – fiscal
burden on the Cypriote economy.
A financially and economically sounder option would be to allow
Cyprus to sell the shares it will acquire in the banks to the ESM, when
the direct recap instrument becomes available. The transaction price
would be set so as to ensure that the incurred, expected and at least
part of the unexpected losses would be allocated to the junior
bondholders first and to Cyprus second (note: this would mean that the
ESM would pay roughly 3,5 billion for the 10 billion stake of the
government in the Cypriote banks)
To this effect one could add the following sentence to the MOU:
Once direct recapitalisation by the ESM becomes available Cyprus may
apply for direct capital support from the ESM. This would allow the
Troika to assume that before the end of the programme (2015), the debt
of Cyprus would be reduced by 3,5 billion (- 20% of GDP).
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