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Bailout candidate Cyprus slams eurozone austerity pill

Charlie Charalambous
Cypriot President Demetris Christofias leaves the EU Headquarters on December 14, 2012 in Brussels. Christofias hit out on Monday against the harsh austerity measures being meted out against struggling eurozone members as the Mediterranean island faces a bleak New Year.

Cyprus President Demetris Christofias hit out on Monday against the harsh austerity measures being meted out against struggling eurozone members as the Mediterranean island faces a bleak New Year.

The communist head of state, who tried repeatedly to avoid the inevitable punishing terms of an EU bailout by seeking credit from Russia, said that the policies imposed by the bloc's richer members had been counter-productive.

"It must be admitted that policies implemented on a pan-European level have not succeeded in providing a solution to the economic problems created by the crisis," Christofias said in a televised New Year's message.

"On the contrary, they have recycled and worsened economic and social injustice," he added.

Resort island Cyprus has already pushed through tough austerity measures to meet the demands of eurozone creditors for more than a billion euros in cuts and savings. The four-year adjustment programme represents 7.25 percent of gross domestic product.

Parliament has approved public sector salary cuts, a freeze on index-linked wages until 2016, extended emergency salary contributions in the public and private sectors, and increases in duty on cigarettes, alcohol and petrol.

But eurogroup finance ministers are not expected to take a final decision until January 21 on a draft agreement with international lenders for a bailout reportedly totalling 17.5 billion euros ($23.1 billion).

Christofias said the picture painted by many European countries in trouble does "not honour" the European Union.

"The future of a United Europe cannot be poverty, deprivation, unemployment and homelessness."

Christofias said the EU's "one-sided" approach has failed to achieve growth in those recession-hit countries it has tried to help.

"A different approach is needed which will emphasise development, social cohesion and true solidarity within the Union. It is with sadness that we observe the absence of such policies."

Nicosia requested a bailout in June when its two largest Greek-exposed banks asked for assistance after failing to meet EU capital buffer criteria.

It has been negotiating the terms with the so-called troika of the European Central Bank, the European Union and the International Monetary Fund.

The money needed by Cyprus has been widely reported to total 17.5 billion euros ($23.1 billion) -- 10 billion euros for the banks, 6.0 billion euros for maturing state debt and 1.5 billion euros for public finances.

The country's entire GDP in 2011 was 17.97 billion euros and, according to 2013 budget projections, it is expected to shrink 2.4 percent this year.

Christofias conceded he had hoped to secure a loan from elsewhere rather than enter the EU's support mechanism because it would involve "painful sacrifice".

"Even before the initial agreement with the troika, we made great efforts to find funding from other sources, precisely because we at least, were under no illusion about the problems we were going to face."

Cyprus had hoped to secure a 5.0 billion euro loan from Russia, on top of 2.5 billion euros it already borrowed last year, but agreement never came.

Christofias was making his last address to the nation as he will not be standing for re-election in February, becoming the first Cyprus president not to do so.

He always said he would step down if he failed to make progress towards ending the island's nearly four-decade division.

In his speech, he charged that stalemated UN-backed reunification talks had been undermined by Turkey, which occupied the island's northern third in 1974 following a Greek Cypriot coup seeking union with Greece.

Christofias said launching the search for offshore oil and gas -- over the protests of Turkey -- had been his biggest achievement in office.

"Finding natural gas is the most important economic, political and social event since Cyprus independence (in 1960)," he said.

"I have no doubt that this five-year period will remain in history as the period when the prospect of natural gas materialised and created hope for us, our children and grandchildren."