BRUSSELS (AP) — The new head of the euro area's finance ministers refused Monday to rule out forcing private depositors in Cypriot banks take losses as part of a bailout of the country.
Cyprus is in discussions with potential international creditors, including its partners in the 17-country eurozone, about a rescue package to avoid possible bankruptcy that could see it ditch the euro currency.
At the end of his first meeting as head of the Eurogroup, Jeroen Dijsselbloem, repeatedly declined to rule out a radical plan of making uninsured depositors, as well as holders of the country's bonds, take losses on their savings.
Instead, Dijsselbloem, who is also the Dutch finance minister, said the only discussion on Cyprus was whether it was doing enough to combat money-laundering. Cyprus got into trouble through its banks' exposure to Greece. The banks have also been criticized — particularly in Germany — for failing to halt money laundering by its mainly Russian clients.
Dijsselbloem (pronounced DIE-SELL-BLOOM) confirmed that a private firm is being sent to Nicosia to assess the security of the country's banks and its conclusions are likely to inform a memorandum of understanding between Cyprus and international creditors expected next month.
Any deal will have to wait until after a presidential election this month in Cyprus that opinion polls indicate will be won by conservative Nicos Anastasiades. Olli Rehn, the European Commission's top financial official, sought to downplay the possibility that depositors face potential losses.
"What I can say is there are no proposals by the European Commission," Rehn said. A number of rescue plans — analysts estimate it will be around €15 billion ($20 billion) — have been touted for Cyprus. Though the cost of the rescue will be minimal, in comparison with the deals for Greece, Ireland and Portugal, markets are closely monitoring the situation.
"It might just be that the politicians are annoyed about who may have actually been placing deposits there and would like to fire a warning shot across their bows," said Gary Jenkins, managing director of Swordfish Research.
Dijsselbloem was equally reticent about the recent appreciation of the euro, which has prompted concerns across European capitals that it will make life more difficult for exporters. The euro is trading above where it was for much of 2012. That's partly due to renewed confidence in the currency but it's also because of a change in Japanese economic policy, which has seen the yen driven down and other currencies, notably the euro, marked up.
Currencies are likely to feature at the upcoming meeting of finance ministers from Group of 20 leading industrial nations in Moscow at the weekend. There are mounting fears of a currency war in which countries would pursue tit-for-tat policies with their exchange rates to get an edge.
"I think we have to avoid any type of currency war," said French Finance Minister Pierre Moscovici who will attend the G-20. "We have to avoid unnecessary pressure on the central banks." After Monday's meeting, the finance ministers headed off to give their former boss, Jean-Claude Juncker, a proper send-off. Juncker, the Luxembourg Prime Minister, recently quit his role at the Eurogroup after eight years — a period that saw the euro's successful launch give way to a crisis that raised fears for its survival.
Since the eurozone's debt crisis exploded in late 2009, most of the Eurogroup's meetings have dragged into the wee hours as finance ministers struggled to manage a deteriorating economic situation. The relaxed approach to Monday's meeting is a reflection of the eurozone's calmer financial mood following last summer's insistence by Mario Draghi, the president of the European Central Bank, that he would do "whatever it takes" to save the euro.
"We have seen a continuation of the steady normalization of market conditions that has in fact been under way since last autumn," said Rehn. A key indicator of the improvement is the hope that Portugal and Ireland will soon be able regain their financial independence following their bailouts.
"We will discuss at our next meeting, in March, how best to support Ireland, as well as Portugal, in successfully exiting its program and fully returning to market financing," said Dijsselbloem. Despite the calmer backdrop, the eurozone economy is one of the world's laggards. Figures later this week are expected to show that the eurozone remained in recession in the final three months of 2012.
"We don't have sand under our feet but we are now on firm ground," said Maria Fekter, Austria's finance ministers. "But the general situation is very fragile.