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Eurogroup wants Cyprus to protect small savers

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BRUSSELS, March 18 (Reuters) - Euro zone finance ministers held a conference call on Cyprus on Monday evening.

Below is the text of the statement issued after the teleconference. "18 March 2013 Statement by Eurogroup President Jeroen Dijsselbloem on Cyprus.

"The Eurogroup held a teleconference this evening to take stock of the situation in Cyprus. I recall that the political agreement reached on 16 March on the cornerstones of the adjustment programme and the financing envelope for Cyprus reflects the consensus reached by the Cypriot government with the Eurogroup. The implementation of the reform measures included in the draft programme is the best guarantee for a more prosperous future for Cyprus and its citizens, through a viable financial sector, sound public finances and sustainable economic growth.

I reiterate that the stability levy on deposits is a one-off measure. This measure will - together with the international financial support - be used to restore the viability of the Cypriot banking system and hence, safeguard financial stability in Cyprus. In the absence of this measure, Cyprus would have faced scenarios that would have left deposit holders  significantly worse off.

The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits  below EUR 100.000. The Cypriot authorities will introduce more progressivity in the one-off levy compared to what was agreed on 16 March, provided that it continues yielding the targeted reduction of the financing envelope and, hence, not impact the overall amount of financial assistance up to EUR 10bn.

The Eurogroup takes note of the authorities' decision to declare a temporary bank holiday in Cyprus on 19-20 March 2013 to safeguard the stability of the financial sector, and urges a  swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures.

The euro area Member States stand ready to assist Cyprus in its reform efforts on the basis of the agreed adjustment programme." 

 

Eurogroup President Jeroen Dijsselbloem

Cyprus starts to lose its appeal for wealthy Russians

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Author: 
Megan Davies and Lidia Kelly

RUSSIANS have stashed away huge sums in Cyprus since the Soviet Union collapsed in 1991, making the most of low taxes and light regulation to keep their money safe and, in some cases, to launder it.

But Russian banks, companies and individuals will be hit hard if Cyprus imposes the one-off levy on bank deposits as part of a European Union bailout, and some started withdrawing their money even before the weekend deal was agreed.

"Corporate clients have been calling and emailing asking what is happening and they are quite concerned to say the least, because they need to know what to do," said Thomas Keane, co-founder of Cyprus-based law firm Keane Vgenopoulou & Associates LLC, which has Russian corporations amongst its clients. "They are considering discussing looking at other jurisdictions."

Keane said that in the past ten days since rumours surfaced about such a move, Russian depositors had taken around €2 billion out of Cyprus.

A Moscow-based adviser said: "People will start looking at London, Zurich, maybe the Far East, Switzerland."

Michael Pugh, partner at law firm Hogan Lovells in Moscow said he expected the move to provoke turmoil in the markets and could lead to people withdrawing their deposits, which in turn may destabilise Cyprus further.

"When I heard about it, my first thought of course was 'Oh God, I have money there.' And I got scared. Really scared," said a panicky customer who declined to give her name outside a branch of Uniastrum Bank in Moscow.

She poured scorn on an official statement by the bank that client deposits were secure.

Uniastrum, a bank best known for providing payments services, is controlled by Bank of Cyprus, in which Russian billionaire Dmitry Rybolovlev owns a minority stake.

One Russian bank, Alfa Bank, estimates that $70 billion of illegal capital flight from Russia in the past two decades may have found its way to Cyprus.

Ivan Tchakarov, Chief Economist, Russia & CIS at Renaissance Capital, said the moves were "obviously manageable from a macro perspective but will be very painful for individual depositors."

"Russians can ask a fair question - we have a deep relationship with Cyprus and have been helping them with loans ... In terms of the Russian reaction - they are not happy," he said.

Russia wants future involvement on Cyprus after 'dangerous' levy

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Author: 
Lidia Kelly and Alexei Anishchuk

A lack of coordination with Russia in future on Cyprus could affect a decision by Moscow on restructuring its €2.5 billion euro loan to the island, the Russian finance minister said yesterday.

Russian President Vladimir Putin branded as "dangerous" a weekend decision by the European Union to impose a levy on Cypriot bank accounts as part of a €10 billion bailout.

The EU agreed the move without involving Russia which has strong financial ties with the country.

Russians account for much of the billions of euros held in Cypriot banks by foreign depositors and its banks are heavily exposed to the island.

As part of a package of support for Cyprus, EU officials expect Russia to extend its existing loan by five years and refinance terms.

But Moscow was frustrated that it was not consulted on the levy proposal.

"We had an agreement with colleagues from the euro zone that we'd coordinate our actions (on Cyprus)," Finance Minister Anton Siluanov told Reuters.

"So, we will consider the issue of restructuring of the loan taking into account our (future) participation in the coordinated actions with the European Union to help Cyprus."

Amongst the host of calls for alternative measures to be taken over the weekend was that of an alleged counter-proposal by Russian giant Gazprom. Reports claimed that in exchange for financial support, Gazprom would be given the right to extract natural gas from Cyprus’ exclusive economic zone. Those reports were denied, both by Gazprom spokesman, Sergey Kupriyanov, and Government Spokesman, Christos Stylianides.

“Reports of a deal are not correct,” Stylianides said yesterday. 

A host of private jets arrived in Cyprus late on Sunday and early on Monday morning as Russian businessmen gathered on the island to discuss possible moves with consultants this week in light of the weekend’s developments.

With a vote by the Cyprus parliament on the measure now delayed until today, the government in Nicosia was working on a plan to soften the blow for smaller savers.

There are almost €70 billion euros in deposits held in Cyprus. A little less than half that is held by non-residents, most believed to be Russian, prompting the strong comments from the Kremlin.

"While assessing the proposed additional levy on bank accounts in Cyprus, (President) Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesman Dmitry Peskov told journalists.

Putin called a special Kremlin meeting yesterday to discuss developments.

Cyprus' Finance Minister Michael Sarris will visit Moscow tomorrow for meetings to try to pin down new loan terms, a government Russian government source said.

Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus - the two biggest banks on the island.

Cyprus is a favoured offshore centre for Russian big business, thanks to its low taxes and light regulation. It ranks as the largest source of foreign direct investment into Russia - money that is largely Russian in origin.

Prime Minister Dmitry Medvedev said the euro zone decision seemed to be aimed at confiscating someone else's property.

"This practice, unfortunately, was well known and familiar in the Soviet period," Medvedev was quoted as saying by Russian media.

Although Russia has never imposed an official levy on deposits in the post-Soviet history, during its 1998 crisis it had imposed a moratorium on exchanging hard currency bank deposits, which hit bank deposits hard.

At the end of last year, Russian banks had around $12 billion on deposits with Cypriot banks and corporate deposits accounted for another $19 billion, according to Moody's credit-rating agency.

That figure is more than twice the size of the bailout, which had been repeatedly delayed amid concerns from other EU states that the close business and banking ties with Russia made Cyprus a conduit for money-laundering.

Most of Russia's largest banks have some credit exposure to Cyprus. VTB, Russia's second-largest bank by assets, had $13.8 billion in assets and $374 million through its Cypriot subsidiary, Russian Commercial Bank, at the end of 2011.

A trader in a large foreign bank operating in Russia said VTB's Cyprus deposits amount to several billions through its Cyprus subsidiary RCB.

"Assuming $3 billion in deposits and 8 per cent tax hit, VTB's clients would lose around $240 million, but no exposure to the bank itself," the trader said.

Banks will remain closed but ATMs stocked up

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Author: 
George Christou

BANKS will remain closed today and tomorrow, the Central Bank announcing yesterday that “March 19 and March 20 have been declared bank holidays.”

“We could not have opened, with the bill for the deposits levy still pending,” said a senior bank executive who added that nobody knew what the levy would eventually be. The angry reaction, caused by the bail-in of small depositors had forced the government to re-consider how the haircut would be applied. 

On Sunday night the Central Bank had informed commercial banks that the levy percentages had changed. For deposits up to €100,000 the levy would be 3 per cent, between €100,000 and €500,000 10 per cent and above €500,000 12.5 per cent.

At yesterday morning’s House Finance Committee meeting, the Governor of the Central Bank Panicos Demetriades suggested that there should be no levy on deposits of up to €100,000, but he could not say what percentages would have to be cut from bigger deposits to make up the €5.8 billion that had to be raised from the hair-cut.

In spite of the banks being closed, ATMs will be stocked up with cash for people wanting to make withdrawals. Banks had to re-supply the machines with euro-notes several times over the long weekend, especially after the announcement of the bail-in early on Saturday morning.

“ATMs usually run out of money on Monday evening when it is a long weekend, but last Saturday they ran out by 8.30 in the morning,” said the bank executive. There were instructions from the Central Bank to keep re-supplying the ATMs, but by Monday most branches had no more money and had to ask for extra cash from the Central Bank.

In an announcement issued yesterday, the Association of Cyprus Banks said that “in cooperation with the Central Bank of Cyprus, banks are making every effort to ensure that the increased needs of cash among the public will be continuously satisfied through the ATMs.”

Meanwhile, the banks have been trying to agree a uniform policy for dealing with customers once the banks finally open to the public. Although there has been no agreement, the maximum amount of same-day cash withdrawal is expected to be €10,000. Sums up to €200,000 would be available the next day.

No uniform policy has been agreed on how to deal with customers wanting to cash fixed-term deposits. Breaking a fixed-term deposit is at the discretion of the bank which usually imposes a hefty fine when it is cashed, but it is unlikely banks would be very obliging when such a request is made.

The biggest concern of the banks, once they open their doors to the public, is security. There are fears that they may have to deal with angry crowds entering branches and will have security staff stationed outside the big branches to control the number of people allowed in at any time. Security guards would also be patrolling branches.

Banks are due to stay closed until Thursday

Parliamentary vote will be a close call

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Author: 
Peter Stevenson and George Christou

 

A SIMPLE majority in the 56-member House of Representatives would be required for approval of the government bill on the deposits haircut, assuming the twice-postponed vote is held today.

However the numbers simply do not add up to a majority. Three parties AKEL (19 seats), EDEK (5) and the single-seat Greens decided on Sunday that they would vote against the haircut. This leaves President Anastasiadesrelying on his party DISY (20 seats) and his government’s coalition partner DIKO (8).  

Even if he ensures that all DISY members would back the bill the support of the eight members of DIKO that would give the government a fighting chance of passing it, is far from certain. At least three DIKO deputies had indicated they would not back the bill. 

Yesterday, another DIKO member, chairman of the House Finance Committee, Nicholas Papadopoulos, reportedly called for the rejection of the bill, the closure of the banks for a week and the re-negotiation of the deal reached at Friday’s Eurogroup meeting.

It is unclear in which direction the European Party, which has two seats, would go. Its leader Demetris Syllouris said he was opposed to the haircut after Saturday night’s meeting at the presidential palace, but appeared to have softened his stance since then. 

Finally, there is one independent deputy, who is an unashamed populist and is unlikely to back the bill. 

In the best case scenario the government would have 26 deputies backing its bill. Its only hope of passing it through the legislature is that at least five of the anti-haircut camp’s deputies would not attend today’s plenum. 

There was no shortage of opposing voices yesterday. EVROKO deputy, Nicos Koutsou called on the public to resist the measures and to express their feelings, in a peaceful manner, outside the House today. He also said that the President’s address to the nation on Sunday did not offer-up anything new. “It confirmed that he operates as a conveyor belt bringing extortionate terms from ‘his friends’,” Koutsou said. He said Anastasiades was the number one ‘yes man’ in the Cypriot political system.

Greens MP, George Perdikis, said Cyprus required leadership that would resist the ‘fatal procedure’ which the country was being put through.

“I have come to the conclusion that beyond any doubt, our partners in Europe are untrustworthy,” he said. 

"Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law," said House President Yiannakis Omirou, who also heads  EDEK,. “We refuse to subscribe to this."

Junior government partners, DIKO said the party could not support the proposed haircut bill as it stands.  “DIKO considers the outcome of the Eurogroup decision as catastrophic for Cyprus and the Cypriot economy,” a party statement said.

The party has given President Nicos Anastasiades certain suggestion and set certain conditions for the acceptance of any deal, it added. The executive office will meet again today at noon to look over any possible changes to the proposal in order to make a final decision before the House Plenum.

DIKO leader Marios Garoyian, said Cyprus was being used as a guinea pig. “The European Central Bank, as well as everyone else, is trying to go about their business as best they can, as we are too in trying to protect the interests of our country,” he said. “We are in a state of emergency and we are required to take all the measures that we feel are essential, important and vital to protect our country’s interests,” he added.

Main opposition party AKEL, decided on Sunday that it would vote against any proposed haircut bill after a meeting of its central committee. The party has prepared an alternative solution that it will present to the President and the parliamentary parties it said.

Speaking to the Cyprus Mail yesterday, former Labour Minister and AKEL deputy, Sotiroulla Charalambous said that the party would vote against any haircut proposal regardless of any possible changes that could be made. “Our suggestion is that a solution is found without troika’s assistance,” she said.

Speaking after the central committee meeting, the party’s general secretary, Andros Kyprianou said: “The proposal will sink the economy even further into trouble as opposed to helping it recover, creating more potential problems,” he said.

 

Junior coaltion partners DIKO says it will not accept terms as they stand

Our View: There was so much more Anastasiades could have done

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PRESIDENT Anastasiades had obviously underestimated the reaction there would have been to the bail-in of bank deposits to which he agreed to on Saturday morning. He did not bargain for such public anger nor could he have expected that he would have been unable to pass it through the legislature. 

Being a pragmatic and rational politician, he assumed that the political parties, presented with the dilemma between a deposit haircut and bankruptcy of the economy would opt for the former. It did not cross his mind that there would be so many politicians and economists arguing in favour of leaving the euro and allowing the struggling banks to collapse instead.

There was an element of the irresponsible, defiant populism that we know only too well in this stance, but there were also strong grounds to be dissatisfied with the deal the president had secured. He had not protected the interests of small depositors, imposing a 6.75 per cent levy on all deposits under €100,000; he had not opposed the hair-cut and had no plan B.

This criticism seemed well-founded when it transpired yesterday that it was the Cyprus government’s idea to bail-in small depositors. The Eurogroup wanted the bail-in to raise €5.8 billion and did not care who would be contributing. Anastasiades thought that by keeping the levy on big deposits relatively low, just under 10 per cent, he would be able to stop the outflow of foreign capital and maintain Cyprus as an international business centre. 

Yet the reality is that a haircut of deposits would have finished Cyprus as a business centre anyway. This is why the government, which must have suspected this was on the cards, should have looked at other options. For instance, it should have challenged PIMCO’s grossly inflated figure for the banks’ capital requirements and made more of an issue of the fact that the amount was the result of wrong assumptions agreed to by the Cyprus Central Bank. It had a very strong case, considering that the AKEL-appointed governor had been on a mission to blame all the country’s economic woes on the banks and absolving the government of any responsibility.

Why had the government decided against challenging the PIMCO figure, backing a governor who made no secret of his plan to destroy the banks? Had it done so, using concrete evidence, it could have reduced the bailout figure by between three and four billion euros. By not trying to have the PIMCO figure reduced, and instead agreeing to a bail-in without a fight, Anastasiades did himself no favours.

He has put himself and his government in a very weak position and it is highly unlikely, he will now be able to get the haircut bill through the legislature. And once again, there does not seem to be a plan B. 

 

Eurogroup throws the ball back at Cyprus

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Author: 
Stefanos Evripidou

EUROZONE FINANCE ministers last night urged Cyprus to protect small savers’ deposits while still coming up with €5.8 billion from a deposit levy so the island’s €10 billion bailout could go ahead. 

The Eurogroup appeared to show flexibility on the details of how Cyprus should implement the unprecedented haircut on bank deposits, following the blowback caused by its decision last Saturday to take 6.75 per cent from insured depositors with under €100,000 in a Cyprus-based bank, and 9.9 per cent from deposits over that amount.  

The Cyprus deal sent shockwaves through financial markets yesterday, with shares, the euro and the bonds of southern eurozone countries sliding.

Uncertainty reigned as a Cypriot parliamentary vote on Saturday’s deal was postponed twice- from Sunday to Monday and then to Tuesday- with the government nowhere near certain of winning a majority vote. 

The ongoing confusion led the Central Bank to announce yesterday that all banks will be closed today and tomorrow, likely in fear of a depositor’s bank run. 

Ahead of a plenary session in the legislature, scheduled for 6pm today, the eurozone’s finance ministers held a teleconference call for one and a half hours last night to take a second look at their initial decision.  

According to Reuters, the EU finance ministers said they favoured a higher, 15.6 percent hit for richer savers so more modest accounts could be spared.

Various reports suggest it was exactly this kind of deal that the Cypriot delegation in Brussels rejected at the weekend, fearing the destruction of their banking model which lures money from rich Russians and others.

It was not clear if Nicosia will accept it now but if it does, it would still need to raise €5.8 billion from the bank levy as planned, a Greek finance ministry source said, as well as get the levy passed through parliament.

“All Eurogroup ministers said (last night) they wished there was no tax below €100,000 but you can’t force a country to not do that,” the Greek source told Reuters.

“Cyprus doesn't want to impose a large tax above €100,000 because the money will flow out. Two thirds of deposits are from abroad,” he added.

Eurogroup President Jeroen Dijsselbloem released a statement after the teleconference recalling that the weekend’s controversial decision was the product of “consensus” between the Cypriot government and the Eurogroup”.

He reiterated that the stability levy on deposits is a “one-off measure” to restore the viability of the Cypriot banking system and safeguard financial stability in Cyprus, adding that without it, deposit holders would be “significantly worse off”.

“The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below €100,000,” he said. 

Dijsselbloem said the Cypriot authorities “will introduce more progressivity in the one-off levy compared to what was agreed” last Saturday, provided that it still raises the €5.8 billion demanded to release the €10bn rescue package.

The decision taken at the weekend in Brussels to raise €5.8 billion from Cypriot-held deposits across the board was widely viewed by foreign media and analysts as a bad decision that will lead to further uncertainty and undermine what little confidence there was in the eurozone and its banking system. 

The Economist described the decision as “unfair, short-sighted and self-defeating”, while Forbes said the German-led group of EU officials who engineered the Cyprus bailout did a botch job after violating the principle pillar of modern banking- deposit insurance. 

“If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me,” said Peter Dixon, global financial economist at Commerzbank.

In Cyprus, the majority of people and parties were first in shock and then uproar, questioning why small Cyprus should be the first country in the eurozone to force a hit on depositors, and especially insured ones. 

As the full effect of the initial decision hit home, EU leaders and banking officials appeared to show some flexibility on the details of a deal, while also trying to pass the buck on who’s decision it was to force losses on insured depositors. 

“What happened at the weekend was a big buckle in confidence,” Austrian Finance Minister Maria Fekter told a panel discussion on the future on Europe yesterday.

She argued that the European Central Bank (ECB) and Cyprus rejected a sliding scale one-off tax on deposits going from 3.5 to 12.5 per cent, preferring instead to cap the levy at under 10 per cent. 

“It is up to the government alone to decide if it wants to change the structure,” ECB policymaker Joerg Asmussen, who was pivotal in the weekend negotiations, told reporters in Berlin. “The important thing is that the financial contribution of €5.8 billion remains.”

President Nicos Anastasiades last night chaired a meeting at the Presidential Palace including Central Bank governor Panicos Demetriades, cabinet members and finance ministry officials. 

It remains to be seen what deal the government will present parliament today and whether it can be passed. As for the long-term, Cyprus will just have to wait and see what the final impact of the last few days will be on its economy and future. 

Mixed reports doing the rounds yesterday suggested various scenarios where, in one case, depositors with under €20,000 or €25,000 would be spared the levy, while in another scenario all insured depositors would be taxed 3 per cent, 10 per cent would be slapped on depositers with €100,000 to €500,000 and accounts exceeding €500,000 would see a 15 per cent levy. 

The last scenario to be heard came after last night’s Eurogroup meeting, and it follows the view that insured depositors be spared while the remainder get a 15.6 per cent levy. 

“Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law,” said House Speaker and EDEK leader Yiannakis Omirou earlier in the day, adding, “We refuse to subscribe to this”. 

CB governor Demetriades told parliament yesterday: “The most important question is what would happen the following day if the bill isn’t voted.”

He added: “What would certainly happen is that our two big banks would need to be consolidated. This doesn’t mean that they would be completely destroyed. We will aim for this to happen in a completely orderly way.”

Demetriades is reportedly against taxing insured depositors to raise the funds demanded by the troika as a precondition for the bailout, noting that this undermines trust in the banking system. 

Earlier yesterday, Finance Minister Michalis Sarris commented on his role in the weekend’s shock decision. Sarris reminded MPs that the government adamantly against any haircut, adding that Cyprus had proposed taxation on interests for a three-year period, yielding an amount that would be close to the funds required, but the IMF and countries such as The Netherlands, Finland and Germany insisted on a levy on all deposits.

German Finance Minister Wolfgang Schaeuble deflected blame for the hit on small savers yesterday saying this solution “was not the creation of the German government”. 

Schaeuble added that the Cypriot business model of attracting capital with low taxes and favourable legal regulation had proven to be unsustainable. But it had been “imperative in the interest of defending our common currency” to offer Cyprus aid.

The Presidential Palace yesterday categorically denied that Anastasiades ever had the choice of not taxing deposits under €100,000.

In a written statement, government spokesman Christos Stylianides said Anastasiades fought to avert this “unprecedented development” which “has been imposed in a coercive manner by those who try today to justify their own decisions”.

Their position was that by not taxing insured depositors Cyprus would not secure the necessary bailout sum, he added.

President Nicos Anastasiades is mobbed by reporters outside parliament yesterday (Christos Theodorides)

UPDATED: Cypriot draft bill drops levy on deposits below 20,000 euros

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Author: 
Michele Kambas and Karolina Tagaris

THE government proposed on Tuesday to spare small savers from a divisive levy on bank deposits but said it expects parliament to reject the measure, needed to secure an international bailout and avoid default and a banking collapse.

Unless parliament accepts the levy on deposits, EU countries say they will withhold a bailout, plunging one of the smallest European states closer to financial oblivion with potentially severe consequences for the rest of the troubled euro zone.

"The feeling I'm having is that the house is going to reject the bill," President Nicos Anastasiades told reporters. Asked why, he added: "Because they feel and they think that it is unjust and it's against the interests of Cyprus at large."

Asked what he would do next, he said: "We have our own plans."

Europe's demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts as part of a €10 billion bailout sparked outrage among Cypriots and unsettled financial markets.

Anastasiades refused to accept a levy of more than 10 per cent on deposits above €100,000, which meant taxing smaller accounts too. That hurts ordinary savers with deposits that they thought came with a state guarantee.

Stunned by the backlash and fearing rejection by Cypriot lawmakers, eurozone finance ministers urged Nicosia on Monday to avoid hitting accounts below €100,000, and instead increase the levy on big accounts, which are unprotected by the state deposit-insurance system.

The European Union and International Monetary Fund are demanding Cyprus raise €5.8 billion to secure its bailout, needed to rescue its financial sector.

A revised draft bill seen by Reuters would exempt savings under €20,000 from the planned 6.75 per cent levy on deposits of less than €100,000. The government has not explained how it would fill the funding gap this would create.

French Finance Minister Pierre Moscovici said the eurozone could not lend Cyprus any more, since the country's debt would become unmanageable.

"Above €10 billion we are entering into a size of debt that is not sustainable," Moscovici told reporters in Paris.

It was not clear if the vote on the measure would even go ahead in the fractious 56-member parliament later on Tuesday, if leaders were sure it would be rejected.

The House of Representatives was expected to meet at 6pm. Tuesday's vote, originally planned for Sunday, has been postponed twice already. Three parties have said outright they will not support the tax, while a fourth, in the governing coalition, said it cannot support it as it stands either.

IMF Managing Director Christine Lagarde said in Frankfurt that the global lender supported Cyprus' effort to achieve what she called "more progressive rates" in the levy on deposits.

Anastasiades continues to resist raising the levy on big deposits - many held by foreigners including rich Russians - fearing for the island's banking business model and reputation as a safe haven.

He asked the EU for more aid during a telephone conversation with German Chancellor Angela Merkel on Monday, with a second call expected on Tuesday.

Government spokesman Christos Stylianides said Anastasiades may also speak to Vladimir Putin, the Russian president, who described the tax on Monday as "unfair, unprofessional and dangerous."

Russia's envoy to the EU likened the levy to a "forceful expropriation" that could wreck Cyprus' financial system.

"When the banks open, people will rush to withdraw their deposits - that's another threat - and then the whole banking system can collapse," said Vladimir Chizov.

Cypriot Finance Minister Michael Sarris was due to hold meetings in Moscow on Wednesday, partly to try to get an extension to an existing 2.5 billion euro loan.

Russian authorities have denied rumours that the Kremlin might offer more money, possibly in return for a future stake in Cyprus’ large but as yet undeveloped offshore gas reserves, which have further raised the island's strategic importance.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a "Trojan donkey" for Moscow inside the European Union.

Stunned Cypriots emptied cash machines over the weekend and banks are to remain shut on Tuesday and Wednesday to avoid a bank run. Hundreds of protesters rallied outside parliament on Monday, honking horns and holding banners saying "We are not your guinea pigs!"

"If they vote for this tax they will face the fury of the people," said Markos Economou, a 47-year-old physics teacher and father of two. "The banks and the politicians should pay for this mess, not the people."

The island's stock exchange also suspended trading for another two days.

International market reaction has been muted so far but if a vote was lost, or postponed, that could change. The uncertainty saw the euro drop 0.2 per cent as it remained near a three-month low and European shares fall 0.4 percent in early trade.

While Brussels has emphasised that the measure is a one-off for a country that accounts for just 0.2 per cent of European output, fears have grown that savers in other, larger European countries will be spurred to withdraw funds.

 

 

Representatives at the House meet to discuss proposed levy
An MP studies a copy of the revised draft of the bill

UK sends plane-load of cash to Cyprus for its troops

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BRITAIN said on Tuesday it had sent one million euros in cash to Cyprus aboard a military plane for its troops on the island in case cash machines and debit cards stop working. "An RAF flight left for Cyprus this afternoon with €1m on board as a contingency measure to provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely," the Ministry of Defence said in a statement.

Parliament rejects deposit tax for bailout

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CYPRIOT lawmakers overwhelmingly rejected a deeply unpopular tax on bank deposits on Tuesday, throwing into doubt an international bailout for the troubled euro zone member needed to avert default and a banking collapse.

The 56-seat parliament voted by 36 votes against and 19 abstentions to bury the bill, a condition of a 10 billion euro European Union bailout for the Mediterranean island. One deputy was absent.

 

Cyprus lawmakers reject bank tax; bailout in disarray

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Author: 
Michele Kambas and Karolina Tagaris

NICOSIA, March 19 (Reuters) - Cyprus's parliament overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing euro zone efforts to rescue the latest casualty of the currency area's debt crisis into disarray.

The vote by the small state's legislature was a stunning setback for the 17-nation euro zone, after lawmakers in Greece, Portugal, Ireland, Spain and Italy had repeatedly accepted unpopular austerity measures over the last three years to secure European aid.

The rejection, with 36 votes against, 19 abstentions and one absence, brought the east Mediterranean island, one of the smallest European states, to the brink of financial meltdown.

EU countries said before the vote that they would withhold 10 billion euros ($12.89 billion) in bailout loans unless depositors in Cyprus shared the cost of the rescue, and the European Central Bank has threatened to end emergency lending assistance for teetering Cypriot banks.

But jubilant crowds outside parliament broke into applause, chanting: "Cyprus belongs to its people."

"The voice of the people was heard," said Andreas Miltiadou, a 65-year-old pensioner among the demonstrators.

Newly elected President Nicos Anastasiades earlier told reporters he expected parliament to reject the tax on bank deposits, "Because they feel and they think that it is unjust and it's against the interests of Cyprus at large."

Europe's demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts sparked outrage among Cypriots and unsettled financial markets.

Anastasiades refused to accept a levy of more than 10 per cent on deposits above 100,000 euros, which meant taxing smaller accounts too. That would have hurt ordinary savers with deposits that they thought came with a state guarantee.

Cypriot Finance Minister Michael Sarris flew to Moscow on Tuesday to seek Russian financial assistance. He denied by text message reports that he had resigned, which rattled nerves as lawmakers were poised to vote.

Stunned by the backlash, euro zone finance ministers urged Nicosia on Monday to avoid hitting accounts below 100,000 euros, and instead increase the levy on big accounts, which are unprotected by the state deposit guarantee.

The European Union and International Monetary Fund are demanding Cyprus raise 5.8 billion euros from depositors to secure its bailout, needed to rescue its financial sector.

A revised draft bill would have exempt savings under 20,000 euros from the planned 6.75 per cent levy on deposits of less than 100,000 euros, leaving a shortfall, but that was not enough to sway lawmakers, even in the ruling party, to accept the tax.

French Finance Minister Pierre Moscovici said the euro zone could not lend Cyprus any more, since the country's debt would become unmanageable.

"Above 10 billion euros we are entering into a size of debt that is not sustainable," Moscovici told reporters in Paris.

International market reaction has been muted so far but that might change.

"In the very short term, this will be a small victory for the more rational observers who had looked at this move as, frankly, outrageous. But it leaves Pandora's Box wide open," said Mike Moran, senior currency strategist at Standard Chartered in New York.

While Brussels has emphasised that the measure was a one-off for a country that accounts for just 0.2 per cent of European output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs the group of euro zone finance ministers, said there would be no need to impose a levy in other euro countries.

Deutsche Bank Chief Executive Anshu Jain told a Bundesbank conference in Frankfurt. "We see near term contagion risk as limited. This is unlikely to be a model for other European Union states."

Anastasiades has continued to resist raising the levy on big deposits - many held by foreigners including rich Russians - fearing for the island's banking business model and reputation as a safe offshore financial haven.

He asked the EU for more aid during a telephone conversation with German Chancellor Angela Merkel on Monday.

Some Cypriots hope they could instead get aid from Russia, which has bailed out Cyprus in the past. Many Russians keep their money in Cyprus and operate businesses from there.

Government spokesman Christos Stylianides said Anastasiades might also speak to President Vladimir Putin, who had described the deposit levy as "unfair, unprofessional and dangerous."

Russian authorities have denied rumours that the Kremlin might offer more money, possibly in return for a future stake in Cyprus's large but as yet undeveloped offshore gas reserves, which have raised the island's strategic importance.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a "Trojan donkey" for Moscow inside the European Union since it joined in 2004.

Stunned Cypriots emptied cash machines over the weekend and banks are to remain shut on Tuesday and Wednesday to avoid a bank run. The island's stock exchange also suspended trading for another two days. 

Cyprus tourism officials in Russia to ease concerns

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Author: 
Peter Stevenson

THE EUROGROUP decision to impose a levy on Cypriot banks has caused a slew of  concerns from tourist agents in Russia and the UK according to the Cyprus Tourism Organisation (CTO). 

A group of CTO representatives led by CTO chief Alecos Orountiotis and general-manager Marios Hannides left for Moscow yesterday where they will participate in Russia’s Tourism Exhibition due to begin today. They also hope to ease fears and assure Russians of the safety of Cyprus as a tourist destination.

“One of the goals of our representatives visiting Russia is to put Russian tour operators at ease with regards to the investment they have already made as many of them have invested millions of euros in Cyprus,” Hannides said. He explained that the investments came in the field of hotels, hotel restorations, advance payments and reservations.

“The current situation is causing an uncertain atmosphere because nobody knows exactly what will happen,” he said. Hannides revealed that the CTO had been bombarded with questions asking what would happen regarding the financial situation in Cyprus. “If there are cancellations then it will cause irreparable damage to our economy,” Hannides said. 

“We have to give the message to Russian tourist agents and our partners that they can continue working in Cyprus without any trouble,” he added.

Orountiotis said that there had been no cancellations of either flights or hotel rooms from Russia or the UK.

“Everything is continuing as it was before and I am confident that tourism will not be affected by the financial goings-on in Cyprus,” he said. Orountiotis said that there had been no indications that tourism had been affected, and that his visit to Russia had been planned to coincide with the exhibition.

“It had been planned from before but now it is of more importance as we have many subjects to discuss apart from those that were already in our plan,” he said. “I am sure we will have to answer questions relating to what is happening and we will explain to them that tourism has not been affected in any way in Cyprus,” he added.

It is estimated that more than 550,000 Russian tourists will flock to Cyprus in 2013.

Co-ops: everything under control on our end

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CO-OP bank ATMs have been refilled and are ready to serve the public during the bank closure according to Co-op representative Constantinos Lyras. 

He assured Co-op customers they would be compensated for any losses a proposed haircut of deposits would incur with high-interest stock. He called on customers to remain calm and not attempt to withdraw all of their money as soon as the banks re-open. “We must show trust towards our banking system,” he said.

“A plan is in place, safety measures have been taken so that Co-op ATMs will be constantly refilled so the public can withdraw as much money as is permitted by the machines,” he added. He noted that Co-op institutions would soon release high-interest shares to compensate any money lost by its members according to what will be decided in terms of a potential levy.

“Any money that will be cut from our customers will be returned to them in the form of shares of the Co-operative Central Bank with a reasonable amount of interest, with customers given the option to redeem the cost of the shares after a specific timeframe,” Lyras said.

He added that the sooner the banks opened the better. “The more days banks remain closed the more uncertainty grows and it is my opinion that they should open as soon as possible,” he said. “I hope the correct decisions are taken because if the haircut is not approved without another plan in place then people will panic,” he concluded.

Greece close to picking buyer for Cypriot bank units

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Author: 
Lefteris Papadimas and George Georgiopoulos

 

GREECE is close to completing a deal for a Greek takeover of the local units of Cypriot banks, after at least two of the country's biggest lenders showed interest, government officials and bankers said yesterday.

Greece has been rushing to wrap up the deal in a bid to protect its battered banking system from the fallout from a plan to impose a levy on bank deposits in Cyprus, but its efforts have been held up by delays in Nicosia in approving the tax.

Eurozone finance ministers excluded the Greek branches of Cypriot banks from the controversial tax included in the island's international bailout on condition that those units would be transferred to Greek banks.

"The Greek government is ready to conclude the transfer of Cypriot bank operations in the country to Greek banks in a few hours," a senior government official told Reuters yesterday.

The leaders of Greece's three-party ruling coalition were due to meet later yesterday, with the Cyprus issue expected to feature high on the agenda.

The official said Alpha Bank and Piraeus Bank  had expressed interest in absorbing the Cypriot operations in Greece and that there was also a plan B, without providing details.

Such a plan could involve Hellenic Postbank, a small lender controlled by the country's bank bailout fund Hellenic Financial Stability Fund, if interest by other lenders is deemed unsatisfactory, bankers have said.

The three Cypriot banks with operations in Greece - Bank of Cyprus, Cyprus Popular Bank (CPB) and Hellenic Bank - have about a 10 per cent share of the banking market based on loans and about 8 per cent of deposits.

They operate as branches of their Cypriot parents and not as subsidiaries, meaning they are regulated by Cyprus's central bank, which also provides them with funding through its emergency liquidity assistance (ELA) facility.

Their ELA exposure stems primarily from their Greek operations and covers their funding gap - the difference between assets and liabilities. The Greek units have higher loan-to-deposit ratios compared to their Cypriot parents.

Together they run a network of just over 300 branches in Greece and employ about 5,000 people. Their combined loan portfolio tops 20 billion euros, according to analysts.

The biggest of the three is Bank of Cyprus, which has a network of 181 branches in Greece.

The branches of the three Cypriot banks will stay closed today, in line with the extended bank holiday in Cyprus. Shares of Bank of Cyprus and CPB, which are also listed in Athens, will not trade over those two days.

Athens has rushed to reassure savers in Greece they will not be affected by the Cypriot levy and that the country's banking system is stable and there was little indication of panic as Greek banks reopened on Tuesday after a three-day weekend.

"We don't have withdrawals because of the Cypriot issue," a senior bank executive said. "It's like any other day - we don't see any differences."

Bankers said there was no rush to withdraw savings on Tuesday although concerns remain that the tax on deposits may reverse a trend of deposit inflows back into the Greek banking system since fears of a Greek euro exit began to fade.

"Overall, the situation is calm," said the treasurer of a Greek bank. "We have had phone calls from clients of Cypriot banks asking us what interest rate we can offer if they move their money to our bank. But I don't see any trend developing of withdrawals from Greek banks."

 

EAC offers reprieve on three month bond

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THE Electricity Authority of Cyprus (EAC) decided yesterday not to redeem a three-month government bond, in order not to place additional burdens on the cash-strapped state.

The move was intended as “a show of tangible support to the Republic in these critical times,” read a statement by the EAC’s pension fund management committee.

“At the same time,” it added, “we shall continue to maintain faith in the financial system of Cyprus, by keeping the deposits of the pension fund in Cypriot banks and cooperatives.”

In December the EAC lent the state €100 million, after desperate pleas from the state that it was facing imminent bankruptcy.

The cash came from the workers’ pension funds.

Telecommunications company CyTA had also chipped in with €100 million loan, and the ports authority pledged another €38 million.

Finance ministry officials warned at the time the government would default without the cash.


Sarris: I did not resign

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FINANCE Minister Michalis Sarris denied reports yesterday that he had resigned, as lawmakers were set to debate a divisive tax on bank deposits to secure an international bailout.

Sarris, who was in Moscow yesterday, told Reuters by text message there was “no truth” to the reports, which surfaced shortly after noon.

Daily Phileleftheros posted on its website that Sarris had offered to step down before departing for Russia. President Anastasiades did not accept the resignation, the daily said.

Other media outlets quickly reproduced the report, but did not back up the claim.

Kathimerini said Sarris would be tendering his resignation on returning to the island.

On Monday DIKO MP Nicholas Papadopoulos called for Sarris’ removal, arguing that this would convince European leaders of Cypriot determination not to accept a haircut on bank deposits.

Sarris has come under fire from media quarters for his handling of the Eurogroup meeting last Friday, which decided that Cypriot savers must bear some of the cost of a bailout.

In Moscow, Sarris will be meeting with his Russian counterpart Anton Siluanov, among others.

Travelling with Sarris are former finance minister Christos Mavrelis and Marios Hadjiyiannakis, a member of Popular Bank’s board of directors.

The state broadcaster said last night that a delegation of the Popular Bank was also in the Russian capital to discuss the lender’s fate.

Last hope now appears to lie with Russia

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Author: 
Elias Hazou

AS PARLIAMENT yesterday rejected a bank levy bill, the government was working on a contingency plan, dispatching its finance minister to Russia.

Finance minister Michalis Sarris flew out to Moscow some 24 hours before initially announced.

The economy chief’s mission, informed sources said, was to sell the Russians the latest idea geared at preventing the flight of billions of euros from the island’s already hammered banks.

They said the finance minister’s trip to Moscow was moved forward to give Sarris the chance of striking a deal with the Russians as it was a foregone conclusion that the Cyprus parliament would reject the bank levy as it stood yesterday.

The cornerstone of Sarris’ proposal to the Russians, the same sources said, is for deposits over €100,000 to be guaranteed at 100 per cent of the cash they would lose via the bank tax. The collateral guarantee would come in the form of bank shares backed up by future state revenues from the sale of Cyprus gas.

The proposal is an improvement on a previous one, where only 50 per cent of the taxed amount was guaranteed.

The guarantee was targeted at Russian investors with over €100,000, to dissuade them from pulling their money out of Cyprus – or to at least contain the phenomenon as far as possible.

Issued jointly by the government and the state hydrocarbons company, the guarantee would be activated provided depositors kept their money in Cyprus for a period of two years. 

And the amount guaranteed would not add to Cyprus’ debt as it is a secondary liability, sources said.

Those electing to take the scheme would be compensated in about seven years’ time – once revenues from gas sales started coming in.

Under the latest (third) revision of the bank levy, the government would come short of raising €5.8 billion from the bank levy, as agreed with euro-zone leaders last week.

But the difference could be borrowed from the Russian Federation.

The sources said Sarris would be asking the Russians for a €2 billion loan to make up the shortfall.

It was “no coincidence” that the €2 billion is 10 per cent (like the bank tax) of the estimated €20 billion held by Russians on the island, they added.

Essentially the idea was for the Kremlin to step in and guarantee the amount taxed on Russian depositors.

A withdrawal en masse of Russian money would prove a devastating blow to the island’s financial system.

While in Moscow, Sarris would also try to push for Russian institutional investors to acquire a controlling stake in Popular Bank.

Cyprus has to make a move to salvage its second largest lender, under threat from eurozone leaders that Emergency Liquidity Assistance (ELA) would be cut off unless it agreed to enforcing the bank levy.

International creditors made it clear they will not release a promised €10 billion loan unless Nicosia raises €5.8 billion internally, in what is referred to as a ‘bail-in’. However they have left the particulars up to the Cyprus government.

The finance minister would additionally seek to get the Russians to extend a €2.5 billion loan to ease the island’s immediate debt.

Sources told the Mail also the government might work the collateral guarantee into a third revision of the bank levy bill, which would be amended (again) as follows: zero tax on deposits of up to €20,000; 3 per cent tax on deposits from €20,000 to €100,000; and a 9.9 per cent levy on deposits over €100,000.

The same sources said that – depending on the outcome of Sarris’ contacts in Moscow – the government could reveal the third version of the bill this morning.

Parliament’s expected rejection of the second draft of the bank levy yesterday would thus give Anastasiades the ammunition to convince international creditors there was no other way, the sources hinted.

Should Sarris’ trip bear fruit, President Anastasiades would call a meeting of party leaders before noon to get their consent. The House Finance Committee would then convene, followed possibly by another plenary session of the House for a vote on the third version of the bill, although most likely that would take place tomorrow.

Financial institutions will remain closed today to prevent a run on the banks, but when they will re-open is anyone’s guess.

Finance Minister Michalis Sarris leaving the presidential palace grounds on Monday

Our view: Did deputies heroic negativity contemplate the consequences?

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IN THE END, the twice-postponed debate on the bills for the levy on bank deposits was finally held yesterday evening and the House of Representatives overwhelmingly rejected it. Not even President Anastasiades’ party, DISY, supported it, its 19 deputies abstaining. The defeat of the bills was expected as all the political parties, apart from DISY had taken a stand against the idea of the haircut on deposits.

It was immaterial that the government had yesterday morning presented a revised bill that left deposits under €20,000 untouched. No matter how the levy was raised, the political parties would have voted against it because they are opposed to it on principle as it would destroy the Cyprus economic model as a provider of financial services to foreign businesses. Any levy on bank deposits would drive away foreign businesses, spark an exodus of Russian capital from Cypriot banks and drastically contract the economy.

While this was a correct evaluation, as were the repeated references to the lack of EU solidarity and the harshness of the measure, we heard nothing about how the party leaders proposed to proceed. Fiery and defiant speeches are all very good when they are about the Cyprus problem and there is always the status quo to fall back on. But in the case of a bankrupt economy desperate for financial assistance, heroic negativity carries a very high cost that deputies would have done well to contemplate.

Nobody told us what happens now? Will the banks be kept closed for another week until our political parties realise the alternative to a haircut is total collapse of the economy and the impoverishment of everyone? Perhaps they would prefer to leave the euro and return to the Cyprus pound, as TV economists have been demanding, rather than suffer the ‘indignity’ of a deposits haircut.

Without a bailout the haircut of deposits would be much greater – in the region of 60 to 70 per cent - than what had been agreed by the Eurogroup because the two largest banks would be bankrupt and probably take with them the smaller banks as well. A return to the Cyprus pound would be followed by a devaluation and super-inflation destroying living standards and causing widespread poverty. As for the Russian bank deposits, which deputies thought they were protecting by voting against the bill, these would be wiped out in a banking collapse - a certainty if there is no bailout. Did deputies ask Russian businessmen if they would prefer a 10 per cent or 60 per cent haircut of their bank deposits?

The truth is that with or without a deposits’ haircut Cyprus is finished as an international business centre. We could salvage something from the economic ruins left behind by the Christofias government by agreeing to the Eurogroup bailout because the consequences of its rejection are too frightening to think about. 

 

All those against: deputies voting against the new proposals last night

Deputies throw out bailout deal

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Author: 
Stefanos Evripidou

 

PARLIAMENT last night rejected a second draft bill on the proposed levy on bank deposits in Cyprus, considered a precondition to any bailout of the troubled island. 

The initial deal banged out in Brussels at the weekend imposed a 6.75 per cent levy on small savers with insured deposits of under €100,000 and 9.9 per cent on those over €100,000.

Following the global and local backlash to the idea of taxing insured depositers, eurozone finance ministers decided on Monday night that the finer details of the levy could be left up to Cyprus as long as the near-bankrupt member state is able to come up with a €5.8 billion ‘bail-in’ which would then trigger a €10 billion EU/IMF ‘bailout’.

The surprise haircut introduced by the IMF, Germans, Finnish and Dutch in the Eurogroup meeting hit a nerve among small and big depositors, both in Cyprus and abroad, particularly Russia, given that this would be the first time a eurozone bailout requires bank depositors, not bondholders or investors, to take a hit.

With an acute sense of the pervading anger among depositors, the government tabled a new draft bill before parliament yesterday, this time leaving deposits up to €20,000 exempt from the bank levy, while imposing a 6.75 per cent levy on savings between €20,000 and €100,000 and a 9.9 per cent tax on anything higher.

President Nicos Anastasiades was reportedly reluctant to increase the contribution of big depositors even if this meant forcing insured depositors with over €20,000 to contribute, fearful that any levy over 10 per cent would cause the flight of foreign capital from Cyprus, and the end of the country’s business model as a financial services centre, not to mention a potential run on banks. 

However, failing to increase the levy on big depositors while exempting a portion of small savers meant the new bill would create a shortfall in the €5.8 billion expected to be raised.

Perhaps the foreseen deficit was a moot point for the government as Anastasiades earlier yesterday told reporters he expected parliament to reject the tax on bank deposits “because they feel and they think that it is unjust and it’s against the interests of Cyprus at large”.

And he was right. A total of 36 MPs - from opposition AKEL, EDEK, the Greens, as well as coalition partners DIKO and EVROKO - all voted against the bill. 

Ruling DISY’s acting head Averof Neophytou requested a postponement of the vote until today, which was rejected, after which he and 18 other DISY deputies decided to abstain. Only one MP did not vote, DISY’s Stella Kyriakidou who was abroad. 

Ahead of the parliamentary session, between 6,000 and 7,000 people gathered outside parliament waving mostly Russian flags and chanting “Troika out of Cyprus” and “People fight, they’re sucking your blood”. 

During the parliamentary debate, DIKO leader Marios Garoyian said now was the time for parliament to send its own message. He warned that some want to see Cyprus starved so that when the time comes they will give away their natural gas deposits and agree to supply them via pipeline to Turkey. 

EVROKO leader Demetris Syllouris complained that during his recent visit to the German parliament, German MPs adopted an air of polite insult, telling the delegation of Cypriot MPs that their intelligence service had compiled a report saying Cyprus is engaged in money laundering.

“I’d like to see that report and see what it says about Germany,” he said from the plenum floor.

House Speaker Yiannakis Omirou said the Eurogroup’s decision made Cyprus a guinea pig of neo-colonial policies while violating the EU’s own rules on deposits and private property.

The EDEK leader also questioned those who tried to “blackmail” Cyprus by saying failure to pass the bill would be catastrophic.

“Are we naive? If we pass this, won’t every foreigner leave?” he asked.

AKEL leader Andros Kyprianou said the upcoming German elections should not be the criteria for putting together such an unpopular and unprecedented measure as a haircut on deposits, which destroys any hope for Cyprus’ future.

He called on the government to withdraw Cyprus’ application for an EU bailout and instead work with the opposition party on a number of new proposals to raise cash, including issuing state ‘solidarity’ bonds of 10-year length.

Neophytou noted his disappointment with the Eurogroup’s position last Friday. He said just a few hours before the eurozone finance ministers’ meeting, EU friends and partners were assuring Anastasiades that there would be no haircut, but then slapped it on the table. 

A haircut on deposits was the equivalent of “economic hara-kiri (ritual suicide) for the eurozone”, said Neophytou. 

He called on all political parties to show a united front to send the message that they are behind the president as he works to find an alternative proposal and to send the message to Brussels, Berlin and Washington that Cyprus does not want to be pushed out of the single currency.

Speaking to foreign media outside parliament, Chairman of the House Finance Committee Nicolas Papadopoulos said parliament’s message was clear: Cyprus does not want to be Europe’s experiment, nor does it want to leave the euro; it accepts that reforms are necessary but what is being proposed will lead to the collapse of the country’s economy. “Parliament wants to renegotiate,” he said. 

One MP said that an idea being floated is the nationalisation of state pension funds which could raise up to two to three billion euros, which still leaves an equal figure to be found. 

Anastasiades last night expressed his absolute respect for the decision taken by parliament, said government spokesman Christos Stylianides.

He noted that the president has already called a meeting of the party leaders for this morning to discuss the situation, after a planned meeting with Archbishop Chrysostomos at the Presidential Palace.

Anastasiades will chair a cabinet meeting after his discussion with the party leaders and before meeting a delegation from the troika at midday. 

After sending his finance minister to Moscow yesterday, the president also had a half-hour phone conversation with Russian President Vladimir Putin last night on the latest developments regarding a Cyprus bailout. He also spoke on the phone with Greek PM Antonis Samaras and Greek President Karolos Papoulias.

Reports said he had a second phone call with German Chancellor Angela Merkel following his earlier call on Monday about the latest news on the domestic front in Cyprus.

Reacting to the Cypriot parliament's rejection of a proposed levy on savings in banks, Eurogroup President Jeroen Dijsselbloem said he “deeply regretted” the lawmakers’ decision.

“The offer from the eurozone and the Eurogroup to Cyprus still stands,” Dijsselbloem told reporters.

“The ball is in Cyprus’ court... the greatest volumes of wealth in Cyprus are in the banks, and it’s the banks that have problems, so it’s unavoidable that we look at this.”

German Finance Minister Wolfgang Schaeuble said he also regretted parliament’s decision.

Speaking to ZDF television, he said: “Cyprus requested an aid programme. For an aid programme we need a calculable way for Cyprus to be able to return to the financial markets. For that, Cyprus’ debts are too high.”

Schaeuble added that it was a “serious situation” now in Cyprus and that the country had no one to blame for its situation other than itself. He said he doesn’t think its “business model” works anymore and warned Cyprus must act quickly.

“In a situation like this, when an insolvency looms, then the creditors have to participate if they want to avoid an insolvency. If you want to avoid that, then the investors in the bank have to make a corresponding contribution. Whether that’s a ‘bail in’ or a levy, that’s for Cyprus to decide itself.”

The European Central Bank said it “took note” of the vote and remained “committed to provide liquidity as needed within the existing rules”.

 

Thousands gathered outside parliament to protest the troika proposals

Cyprus seeks Russian bailout aid, EU threatens cutoff

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Author: 
Michele Kambas and Karolina Tagaris

CYPRUS pleaded for a new loan from Russia on Wednesday to avert a financial meltdown, but won no immediate relief after the island's parliament rejected the terms of a European bailout, raising the risk of default and a bank crash.

Finance Minister Michael Sarris said in Moscow he had reached no deal with his Russian counterpart Anton Siluanov, but talks would continue.

Russia's finance ministry said Nicosia had sought a further 5 billion euros on top of a five-year extension and lower interest on an existing 2.5 billion euro loan.

Cyprus has to seek Moscow's help after the euro zone's plan for a 10 billion euro bailout was cast into disarray on Tuesday when the island's parliament rebuffed EU demands for a levy on bank deposits to raise 5.8 billion euros.

Moscow has its own interests in ensuring the survival of Cypriot banks, which have served as an offshore financial haven for Russian businesses and individuals.

The European Central Bank's chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless the country took a bailout quickly.

"We can provide emergency liquidity only to solvent banks and... the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector," Asmussen told German weekly Die Zeit in an interview conducted on Tuesday evening.

Austrian Chancellor Werner Faymann said he could not rule out Cyprus leaving the euro zone, although he hoped its leaders would find a solution for it to stay.

Cypriot officials disclosed that the country's energy minister was also in Moscow, ostensibly for a tourism exhibition, fuelling speculation that access to offshore gas reserves could be part of any deal for Russian aid.

Cyprus has found big gas fields in its waters adjoining Israel but has yet to develop them.

"We had a very honest discussion, we've underscored how difficult the situation is," Sarris told reporters after talks with Siluanov. "We'll now continue our discussion to find the solution by which we hope we will be getting some support.

"There were no offers, nothing concrete," he said.

Not a single Cypriot lawmaker voted for the bailout, which included a proposed levy that would have taken up to 10 per cent from accounts over 100,000 euros.

Smaller bank accounts would also have been hit, although the government proposed to spare small savers with less than 20,000 euros in the bank.

It was the first time a national legislature had rejected the conditions for EU assistance, after three years in which lawmakers in Greece, Ireland, Portugal, Spain and Italy all accepted biting austerity measures to secure aid.

German Chancellor Angela Merkel, whose country is Europe's main paymaster, said it was up to the Cypriot government to come up with an alternative proposal but it was fair to expect savers with deposits over 100,000 euros to contribute to the bailout.

The EU has a track record of pressing smaller countries to vote again until they achieve the desired outcome.

Nicosia was eerily quiet on Wednesday, the morning after demonstrators cheered parliament's rejection of what was seen as an unfair EU diktat.

The government has not allowed banks to reopen this week to prevent a run, but cash machines which were emptied over the weekend have been replenished, giving people access to limited amounts of cash.

"Things won't be so bad as long as people can withdraw from ATMs but if they go too there will be a huge problem," said  Titos Pitsillides, 50.

President Nicos Anastasiades, barely a month in the job, met party leaders and the governor of the central bank at his office. Government spokesman Christos Stylianides said a "Plan B" was in the works.

"A team of technocrats has gone to the central bank to discuss a plan B related to financing and reducing the 5.8 billion euro amount," he told reporters during a break in the meeting with party leaders. He did not elaborate.

Lawmaker Marios Mavrides told Reuters one option under discussion was to nationalize pensions funds of semi-government corporations, which hold between 2 and 3 billion euros.

Anastasiades was also due to hold a cabinet meeting and talk with officials from the so-called "troika" of the EU, European Central Bank and International Monetary Fund.

Among the most urgent decisions awaited was whether the government will allow banks to reopen as planned on Thursday, or keep them closed until next week. Deputy Central Bank governor Spyros Stavrinakis said no decision had been taken yet.

The crisis is unprecedented in the history of the divided east Mediterranean island of 1.1 million people, which suffered a war with Turkey and ethnic split in 1974 in which a quarter of its population was displaced. The Turkish-populated north considers itself a separate country, recognised only by Turkey.

While Brussels has emphasised that the tax measure was a one-off for a country that accounts for just 0.2 per cent of Europe's output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.

Leaders of the currency union said the bailout offer still stood, provided the conditions were met. Teetering Cypriot banks have been crippled by their exposure to the financial crisis in neighbouring Greece, where the euro zone debt crisis began.

Germany, facing an election this year and increasingly frustrated with the mounting cost of bailing out its southern partners, said Cyprus had no one to blame but itself.

With Sarris and Energy Minister George Lakkotrypis in Moscow, there was mounting speculation that Russian oil and gas giant Gazprom had mooted its own assistance plan in exchange for exploration rights to Cyprus's offshore gas deposits.

Noble Energy reported a natural gas recovery of 5 to 8 trillion cubic feet of gas south of Cyprus in late 2011, in the island's first foray to tap offshore resources.

A senior source in the "troika" said dealing with Cyprus was even more frustrating than protracted wrangling with Greece.

"The Greeks wanted to cheat on you all the time, but they knew what they wanted. The Cypriots are leaving us really confused," the source said. 

 

President Nicos Anastasiades chairs a meeting at the palace
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