Govt may struggle to pay December state salaries

THE government may struggle to pay public sector salaries in December unless a bailout deal is clinched by mid-November, an official document quoted Finance Minister Vassos Shiarly as saying.

Shiarly expressed the hope yesterday that international lenders would be on the island early next week to finalise the conditions for the island’s bailout.

And the minutes quoted Shiarly as saying Cyprus might be "butchered" if international lenders dealt with the country in isolation from other eurozone states that need financial aid.

Meeting December's payroll commitments was contingent on the goodwill of bankers, the minister said according to the minutes of a meeting with parties in parliament.

Shiarly said that if a deal were agreed, Cyprus could get a first instalment of aid by December 24. 

Asked if Cyprus would manage until December, he said: "if needs be. We will have difficulties, but nothing can be absolute. I can't make predictions from now, because no banker would undertake a commitment on financing, even when times were good. I'm just saying it's manageable."

Cyprus sought financial aid from the European Union and the International Monetary Fund in June but the government has still not concluded a bailout deal with lenders despite repeatedly emphasising that it must be done before the November 12 Eurogroup meeting.

“We are ready,” Shiarly said yesterday after a meeting at the presidential palace. He said it was up to the troika to decide when they would come “but I hope… that we will see them early next week. I believe we are in position to clear many of the pending issues.”

After November 12, it will take the parliaments of individual eurozone nations about six weeks to sanction the Cyprus memorandum.

A deal should have been in place by October 20 to put the issue on the agenda of the Eurogroup meeting, Shiarly told the lawmakers, according to the minutes.

But Cyprus in fact only signalled it was ready to delve deep into a final round of talks last week, after preparing what it said were its own "counter-proposals" to an austerity package prepared by the troika in July.

At the parliamentary hearing, one lawmaker said Cyprus’ aid needs should be discussed at the same time as those of Spain and Greece because, if isolated, "Germany and Finland will tear us to pieces".

Responding to this at the time, Shiarly said: "Yes. That is precisely their approach. Our case is indeed difficult, because some have very negative positions concerning Cyprus... I'm inclined to believe that if we go on our own, naturally they will butcher us."

The island frequently falls under the radar, a fact authorities were clearly hoping it could turn to its advantage with a less-than-strenuous grilling from EU peers.

In the minutes of the discussion, Shiarly relates cases of some European finance ministers getting testy with Cyprus even though it was 2.30am and they were "exhausted" after spending hours on Greece and Spain.

"Imagine what will happen if we go completely on our own," he was quoted as saying. He also cited disagreements between Cyprus and lenders on the recapitalisation requirements of its banks. Lenders believe Cyprus needs €16 billion - €10 billion for banks alone. The government puts the total at €11 billion with 5.0 billion going to the banks. 

The island's debt to GDP ratio is already hovering at about 83 per cent.