By MENELAOS HADJICOSTISAssociated Press
NICOSIA, Cyprus (AP) - Cyprus began talks Tuesday with the European Union and the International Monetary Fund to gauge how much bailout money it may need to prop up banks weighed down by their huge exposure to Greek debt.
Finance Minister Vassos Shiarly said officials from the so-called 'troika' - the European Commission, the European Central Bank, and the IMF - will meet with Cyprus government and central bank authorities, among others, during the course of the week to gather information.
Shiarly said the troika team will depart Saturday and return about in about a week after digesting the data and forming an idea of how much Cyprus, which has a gross domestic product of €18 billion, will require from the EU bailout fund. Talks should wrap up by the end of the month, he said.
Cyprus, which has a population of 862,000, last week became the fifth EU country to ask for financial aid from its partners in the common currency union. The tiny island nation, which joined the eurozone in 2008, needs at least €2.8 billion ($3.5 billion) to support its banks, which have suffered huge losses from the write-down on their Greek government bond holdings and their large loan portfolio in the debt-crushed country.
Many Cypriots worry that the bailout request will lead to the same painful salary cuts and tax hikes that other bailed-out countries, such as Greece, have had to endure.
The European Commission, the executive body of the EU, says Cypriot authorities must take action in several areas, including reforming the pension system and a bloated public sector that swallows about a third of all government spending.
Shiarly insisted that Cyprus' economy is on a much better footing than that of many other European countries and that troika officials understand the island's economic woes primarily have their roots in the Greek crisis.
"I believe that these people, these technocrats who are very knowledgeable about the consequences to the Cypriot economy and taking all this into consideration, will see and handle the matter with full understanding," Shiarly told reporters. "The demonization of this group or the system, I believe, is unfair and mistaken."
Cypriot authorities are particularly worried that troika officials may demand an increase in the island's low corporate tax rate of 10 percent, which attracts a lot of business. Shiarly is adamant that this won't happen.
Cyprus, which is unable to borrow from international markets because of its junk credit rating, also has asked for loans from Russia and China. The island is getting by this year on an earlier, €2.5 billion ($3.14 billion) low-interest Russian loan.
Shiarly suggested that the loan appeals may have been eclipsed by the country's EU bailout request. He said that if there's a positive response from either Russia or China, Cypriot authorities would "discuss it with the troika in full transparency so we can see how we'll handle such a situation."
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