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Home BUSINESSWhy Cyprus may not benefit from ECB purchase of sovereign debt
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Sat, 24 Jan, 2015 12:00:14 AM
FTimes- Xinhua Report , Jan. 24
 
 Cash-strapped Cyprus may miss out on badly-needed funds from the purchase of sovereign debt by the European Central Bank (ECB) on account of legislation to which international lenders object, officials said on Friday.
     
The legislation, which was pushed through parliament by opposition parties strongly objecting strict bailout austerity measures, blocks repossession of properties offered as collateral for bank loans.
     
The ECB decided on Thursday to launch a government bond-buying program as a means of pumping hundreds of billions of euros in new money into the sagging economies of eurozone countries.
     
Cyprus Central Bank sources said the eastern Mediterranean island stands to gain 120 million euros (135 million U.S. dollars) each month until September 2016.
     
This would add 2.1 billion euros to the cash-starved economy which is over 11 percent of Cyprus' GDP.
     
But cashing in on the money depends on Cyprus implementing an economic adjustment program providing for the streamlining of both public finances and the banking system, following a 10 billion euros bailout by the Eurogroup and the International Monetary Fund.
     
ECB president Mario Draghi said that in the case of bailed out countries such as Greece and Cyprus, additional eligibility criteria will be applied under the EU/IMF adjustment program, which they have to fully implement.
     
Cyprus is at odds with its lenders since September, 2014, when opposition parties mustered a majority in parliament and passed legislation to prevent repossession of the primary residences of debtors by banks.
     
Repossessions are a central part of the restructuring of Cypriot banks, which have to deal with non-performing loans accounting for 50 percent of their portfolios.
     
The legislation derailed the adjustment program and caused the troika -- technocrats representing the European Commission, the ECB and the IMF -- to cancel a scheduled visit to Cyprus at the end of January to continue its survey of the economy.
     
Under rules for bailed out countries, the purchase of government bonds program will be suspended until a positive outcome of a survey by the troika is submitted.
     
The troika said last week that under present conditions. the pending survey cannot be completed in time by March 1, when the debt purchase program will start.
     
Government spokesman Nicos Christodoulides said the ramifications of the rules set down by ECB for eligibility to the program will be examined in depth.
     
"But it seems that the uncertainty over the repossessions legislation has to be terminated for Cyprus to be able to draw new money from the bond purchase program," he added.
     
The government is racing against time to put in place a bunch of five laws regulating repossessions that would be agreeable to both opposition parties and the troika.
     
The legislation is expected to go before parliament by the end of January but its fate in the highly polarized Cypriot parliament is uncertain.  
 
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