Mar 21, 2013, 09.42 AM | Source: CNBC-TV18

Cyprus exit from Eurozone looks unlikely: NAB

Nick Parsons Of National Australia Bank believes that Cyprus exit from Euro Zone is very unlikely and difficult preposition from political perspective.

Lawmakers in Cyprus have rejected the highly criticised bailout plan for the country's banking system. It still needs 15.8 billion euros to save indebted banks and many fear that it may have to exit Euro Zone, if the country fails to do so.

Nick Parsons Of National Australia Bank, however, believes that Cyprus exit from Euro Zone is very unlikely and difficult preposition from political perspective. "It is a threat that they (Cyprus) have used, but I think it is unlikely to come about in practice until a solution will be found," Parsons told CNBC-TV18 in an interview.

Cyprus parliament rejects deposit tax for bailout

He also thinks that if Cyprus manages to raise additional 5.8 billion euro (apart from the 10 billion Euro offered by the troika) from Russia, then stock markets are likely to positively respond to it.

Below is the verbatim transcript of Parsons' interview

Q: After three days of cuts what’s so inspiring in the Cyprus situation?

A: Very little that's inspiring I would suggest. There is plenty of uncertainty. I think we can be fairly sure a solution ultimately will be found, whether that solution is one which favours savers (depositors of the nation) or finds a bit more favour with Russian mineral exploration companies that remain to be seen.

We know that the deal as proposed on Sunday has been rejected. We also know that country needs over 15.8 billion euros to bail out its banks and the troika, International Monetary Fund (IMF) and European Union (EU) are only going to put up 10 billion Euros. So Cyprus has to raise 5.8 billion Euros and it has to do so quickly.

Now it is possible given that the Finance Minister is in Russia today. It is possible that some deal might be put together whereby Russia is granted exclusive access to mineral and oil exploration in Cyprus, but that in turn would require an immediate upfront payment. So money has got to be found from somewhere.

For the moment the European Central Bank (ECB) has said that it will continue to provide emergency liquidity assistance, but it seems that the Cypriot banks are going to be closed until Tuesday of next week.

Initially, they were going to be open on Thursday of this week, but quite unusually there is a bank holiday on next Monday. So, it looks as though banks will end up being closed for the thick end of 10 days.

So, it now seems that you won’t be able to get your money out in Cyprus other than at an automated teller machine (ATM) until Tuesday of next week. So, it is a very fluid situation.

Q: Just to focus on one of the possibilities about this deal that you are talking about with Russia. A) How will markets react to it if they do manage to raise that 5.8 billion euro from Russia and (B) Will the EU lenders be okay with them raising it from Russia?

A: I think the markets would respond positively. After all if we look at Greece on of the things that troika insisted was an accelerated programme of privatisations. Now that privatisation process was thought to involve the possibility of Chinese cash coming into Greece and buying out some of the formerly state-owned enterprises. So if privatisation is a troika recommendation for Greece and so far as it involves foreign inflows of cash; it is very difficult to see them objecting to foreign inflows into Cyprus on the same basis.  Because one would expect or at least hope for some consistency here. So, I think the markets would certainly react positively to it. Whether or not it would please the politicians is a separate element and also we have got the issue of how quickly that cash could be raised. If time wasn’t an issue, we wouldn’t have crisis. We have got a crisis and money needs to be raised quickly.

Q: We aren't talking about a Cyprus exit at all?

A: No, I think that's sabre-rattling. It is possible that Cyprus ultimately might exit. But let us remember that Cyprus faces what it believes is a foreign occupation of half its island from Turkey. And I think Cyprus alone going out side of the Euro and therefore technically outside of the EU would be very difficult, from a political perspective. It is a threat that they have used, but I think it is unlikely to come about in practice until a solution will be found.


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