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Democrat Nicos Anastasiades was
elected yesterday as new president of Cyprus with 57.48% of the votes. Euphoric
supporters were pouring into the streets of the divided island, honking horns
and waving blue and white Greek flags.
The Democratic Party leader stated
that there were no winners or losers in this election as Cyprus has to be
unified to face the new challenges and financial problems which lie ahead.
Anastasiades confirmed that he will
immediately start working on the bailout conditions with the Troika in order to
sign an agreement as soon as possible. He explained that as a result Cyprus
will be closer to Europe and that they will make an effort to follow European
obligations. He also sent a message to the people of Cyprus that he will work
to give back to Cyprus its stability and credibility.
The new president task is not easy
as he will have to negotiate a bailout to avoid a disastrous default. Cypriot
banks alone face a £10 billion capital hole. The government can’t afford to
borrow that amount (equivalent to 50% of the GDP), since its debt is already
approaching 100% of GDP, and therefore would become unsustainable.
Germany, has categorically ruled
out direct recapitalization by the European Stability Mechanism. That leaves
the possibility of imposing loses on the providers of capital to the Cyprus
banking system. But there is not enough equity and subordinated debt to absorb
the losses, so depositors would somehow have to be bailed in too.
How the Cyprus situation will be
resolved could have profound consequences for the euro zone. Once again, its
members must strike a balance between solidarity and sovereignty. Berlin’s
preference appears to be a traditional euro-zone can-kicking exercise. But
euro-zone policy makers may not have the luxury of time, particularly if loose
talk of depositor haircuts continues in a country where a quarter of deposits
are foreign-owned with overnight notice.
The long term future of the
Eurozone is pending on Cyprus solution.
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