Published on 23 Nov 2012

No Cyprus bailout yet. Enter the ‘Dvoika’

A funny thing is happening in the Mediterranean. Cyprus has been poised to become the fourth Eurozone sovereign to agree a bailout, the fifth if you include Spain’s banking bailout.

The European Commission-European Central Bank-International Monetary Fund “troika” mission have been on the island talking numbers. Indeed, today the Cypriot government announced and briefed that the deed was done, as did some Cypriot politicians on national television.

But then this afternoon, a warm but inconclusive Troika statement that said the talks were “productive” that  progress had been made, but “further discussions” around the funding needs of Cypriot banks were required before a final numbers were reached. That might mean a deal after a due diligence exercise for Cyprus’s banks, expected “in the next few weeks”.

What’s going on? Cyprus has been previously granted generous loans by Russia, a move which reflected the large scale Russian investments on the island.

Another explanation may be that the Troika is no longer singing in harmony. Since the US election, the IMF faces a choice as to exactly what approach it wants to push in the Eurozone. The IMF is devoting huge resources and institutional capacity to the wealthy Old Continent.

Voices in the BRIC nations and in Washington are beginning to be raised about the Brussels/ Frankfurt approach to this festering sore for the world economy. This was put on hold for the US election season (to prevent any Lehman style accident in the middle of the campaign), but now, soon, we’ll get to know what the IMF really thinks.

My suspicion is that a fundamental split with the Troika may be around the corner. (my pidgin Russian has come in handy in adapting the word Troika). The Dvoika continues to push harsh austerity and incremental guarantees of debt as the answer even as programme countries struggle to grow.

Mainstream IMF thinking (although that institution is a broad church) would have pushed debt forgiveness as a central ingredient of the Greek bailouts. All of this is being played out right now over Greece again.

If it is also partly behind some of the confusion in Cyprus, we may be in for another spike in this chronic crisis.

Follow Faisal Islam on Twitter: @FaisalIslam

2 reader comments

  1. Philip Edwards says:


    You know perfectly well what the IMF is doing in the Old Continent. So does anybody with a modicum of common sense.

    As for Cyprus, you could always ask Juan Foxley Rioesco, “IMF Consultant.” It’s the kind of dirty job he does with consumate ease.

  2. Chris_____ says:

    The root cause of this is Cypriot banks holding GGBs. The reason they held GGBs was because the EU pushed the line that all sovereigns are equal in the EU, all bonds could be used as tier1 capital and as collateral with the ECB.

    Most Cypriots feel an economic depression under the EU is better than leaving the EU and getting militarily invaded by Turkey again for its oil and gas reserves.


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