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06/19/2013

Surprise! Cyprus having troubles meeting Troika's bailout terms

Cyprustoilets

A police officer walks past the white-gray plaster and perlite creations that look like toilets outside Cyprus's central bank building in Nicosia.  (AP Photo/Petros Karadjias)

Okay, it is really no surprise Cyprus has some heavy concerns regarding the terms of the Troika's bail-out conditions negotiated after the tiny Mediterranean island nearly went bankrupt a few months back.

While many have warned the terms of the bail-out were too harsh and Cyprus would have problems paying back the European lenders, few thought the Cypriots would sound the alarm so fast. The 10 billion euro rescue plan consolidates banks, imposes a massive haircut on certain bank depositors with over 100,000 euros and generally forces Cyprus to restructure it's once tax-haven wealthy banking system.

Turns out, Cyprus President Nicos Anastasiades fired off a letter to the Troika - the European Union, the European Central Bank and the International Monetary Fund - about a week ago decrying the "major shocks" the Cypriot economy is struggling to adjust to.

The Financial Times got a hold of the letter and published an exclusive on Tuesday. But Cyprus is not pleased with FT's coverage. According to Reuters, the Cyprus government has issued a statement saying they aren't seeking to renegotiate the bail-out.

The Anastasiades  letter, also obtained and translated by the openeurope blog said that he is concerned substantial private wealth has been lost and Cypriot firms are losing their working capital. 

"As a result the economy is driven into a deep recession, leading to a further rise in unemployment and making fiscal consolidation all the more difficult," it read.

"It is my humble submission that the bail-in was implemented without careful preparation," he said.

No kidding.

Not to mention, Anastasiades is less than pleased that Cyprus has been forced to pay the cost to ring-fence Greece, he wrote. "The heavy burden placed on Cyprus by the restructuring of Greek debt was not taken into consideration when it was Cyprus's turn to seek help," reads the letter.

What is to be done? The Troika needs to come up with a viable, long-term plan to "liquidity issues" the Bank of Cyprus now faces.

Anastasiades is urging the lenders to review possibilities to "determine a viable prospect for Cyprus and its people."

Fast forward to Wednesday. Reuters is reporting Cyprus is fully committed to implementing the bailout terms and doesn't want to renegotiate.

"I reiterate once again that the Cyprus government is fully committed to applying the terms of the memorandum and has already embarked on that road," Christos Stylianides wrote in a letter to the Financial Times, reports the Guardian.

Reuters also tracked down a senior EU policy and asked if the agreement to save the sunny island could be negotiated and that idea was panned faster than you can say "opa."

 Tanya Talaga is the Star's global economics reporter. Follow her on Twitter @tanyatalaga

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