Published October 12, 2012
NICOSIA, Cyprus – Cyprus' president appealed to trade unions on Friday to rally behind tough austerity measures that the government wants to negotiate with potential creditors in return for a multibillion euro bailout loan to prop up the country's ailing banks and economy.
Dimitris Christofias met with trade union leaders, who have reacted angrily to the proposed public sector salary cuts and tax hikes they say are unfairly being foisted on workers and would deepen the recession rather than spurring growth.
Cyprus asked the European Commission, the European Central Bank and the International Monetary Fund for aid in June to support a banking sector reeling from its large exposure to debt-crushed Greece. The so-called 'troika' wants the government to slash spending by roughly €1 billion ($1.29 billion) before signing off on a bailout deal.
Christofias is asking trade union leaders to "act patriotically" and bite the bullet on the measures to stave off possible social unrest. He's also meeting opposition leaders to get their support, but many have criticized the measures as being inadequate.
"Everyone agrees that we must all strive for a common line, trade unions and political parties, so that the government can negotiate with the troika from a stronger position," government spokesman Stefanos Stefanou said, adding that Christofias will hold another meeting with union leaders.
Stefanou said that the government and political parties are on the same wavelength regarding their opposition to some troika recommendations such as privatizing profitable state-owned companies and scrapping end-of-year bonuses and inflation-based pay rises.
Earlier this week, EU Commission President Jose Manuel Barroso urged Cypriot leaders to agree to a deal and speed up bailout negotiations.
The government is aiming to wrap up talks with party and union leaders in the next couple of weeks in the hope of sealing a bailout deal before the Nov. 12 meeting of euro finance ministers. That could see Cyprus receive the first batch of bailout money in December, when state coffers start to run dry.
Stefanou conceded that there "isn't a great deal of time" to wrap up discussions, but said that everyone is clear about the issues and what's at stake.
"I believe we can conclude this dialogue soon," he said.
Time is weighing on the government, whose request for a €5 billion ($6.44 billion) loan from Russia — made to bolster its bargaining hand in negotiations with troika officials — has so far gone unanswered. Cyprus received a €2.5 billion ($3.22 billion) loan from Moscow last year to pay its bills after it became too expensive for it to tap investors.
International credit rating agency Moody's, which downgraded Cyprus deeper in to junk territory this week said the recapitalization needs of Cypriot banks could exceed €8 billion ($10.31 billion). The agency said that amount would push public debt to a massive 140 percent of gross domestic product — possibly too much to bear for a small country with bleak growth prospects over the next three to five years.
The country is already hurting as the jobless rate is projected to climb to almost 13 percent next year.
Poverty is far from the levels seen in other troubled economies, but there are signs it's on the rise. Cyprus' Greek Orthodox Church says the number of families in and around the capital Nicosia that received food aid last month almost doubled compared with May.