NICOSIA - Cyprus was feeling the heat Thursday as the Troika pressed hard for more austerity from the government as Europe seeks to wrap up a rescue package this month.
But while the government is committed to swiftly agreeing a €17 billion bailout deal it stood firm against Troika demands that it hikes corporate tax rate – from the lowest in Europe at 10% -- to 12.5%.
It dismissed imposing a financial transfer tax and said a haircut for deposits is a non-starter.
The core difference between the two sides is whether the government can manage its debt and pay back the loan.
International lenders argue that without introducing more austerity - which would inevitably include privatisation -- the island’s debt would spiral out of control.
Finance Minister Michalis Sarris said yesterday that cutting spending and raising revenue through investing in offshore gas deposits would be better than a tax on financial transactions that is expected to be introduced in several EU countries.
He also rejected additional cuts to public sector wages and pensions above those included in a preliminary bailout memorandum with the European Commission, the European Central Bank and the International Monetary Fund in December.
ECB President Mario Draghi said a solution was needed to maintain confidence in the broader eurozone.
"Cyprus is a small country but the systemic risk emanating from Cyprus is not small."