Cyprus to vote on new plan, Europe skeptical
Date posted: March 22, 2013
NICOSIA, Cyprus (AP) — Cypriot lawmakers are due to vote Friday on a raft of new measures they hope will qualify the country for a bailout package and help it avoid financial ruin next week. But key European leaders gave no indication it would be enough.
Cyprus needs to find a way to raise the 5.8 billion euros ($7.5 billion) to qualify for 10 billion euros ($12.9 billion) in rescue loans from other eurozone countries and the International Monetary Fund.
But eurozone officials said they had still not seen all the details and would have to discuss whatever final plan Cyprus presents.
“The next few hours will determine the future of this country,” said Cypriot government spokesman Christos Stylianides.
Cyprus has had to come up with the new plan after lawmakers rejected on Tuesday a scheme that would have seized up to 10 percent of people’s bank deposits.
The plan needs to be in place by Monday, when the European Central Bank has said it will cut off emergency support to the banks. That could trigger their collapse and devastate the economy, potentially pushing the country to leave the 17-country euro currency union.
“We are trying very hard,” Averof Neophytou, deputy leader of the ruling Democratic Rally party, told reporters on the progress of talks. “We may have a result this day.”
As part of the package being discussed Friday, lawmakers were considering restructuring the country’s second largest lender, Laiki, which suffered big losses on Greek debt investments.
A large part of deposits in Laiki above the 100,000 euros ($129,000) that are insured could be confiscated. A banking official, who spoke only on condition of anonymity because the talks were ongoing, said seizures of 25-30 percent were being discussed.
Banking officials estimate the restructuring will account for 3.6 billion euros ($4.7 billion) of the 5.8 billion euros ($7.5 billion) the country needs to raise.
The rest of the money could come from a proposed tax on deposits from the Bank of Cyprus, the country’s largest lender, one lawmaker with knowledge of the deliberations said on condition of anonymity because the talks were ongoing.
The lawmaker didn’t specify the size of the tax, but said it would be large enough “so that the numbers add up,” adding that he expected this to be put to a vote tonight.
Laiki bank’s acting CEO, Takis Phidias, condemned the plan. “I’m certain that there will be chaos after these bills are approved.”
Phidias said the initial plan to seize deposits across all Cypriot accounts “would have more evenly shared the burden and certainly, it would have safeguarded both large banks. I’d like to believe that there’s still time to carry out this negotiation.
A government official, speaking only on condition of anonymity as negotiations were on-going, indicated that a tax on deposits in other banks was also still on the table.
The Bank of Cyprus said it backed the idea of confiscating some percentage of all bank deposits over 100,000 euros because there were no immediate alternatives.
The bank warned Cypriots that “a potential collapse of the banking sector could lead to the total loss of all deposits above 100,000 euros and the immediate sale of all collateral accompanying non-performing loans.”
Meanwhile, Cypriot efforts to clinch a contribution from Russia appeared to have failed for now. Russia is a key player in the crisis as Russian depositors have parked around 20 billion euros ($25.8 billion) in the country.
“We will only be ready to discuss various ways of support for that state only after the EU nations and Cyprus work out a final settlement,” Russian Prime Minister Dmitry Medvedev told a news conference.
Russia’s finance minister, Anton Siluanov, said the Cypriots were seeking investment from Russian companies in a Cypriot state-owned firm that will manage revenue from the island’s newfound offshore gas. The Russian investors, however, were not interested.
Cyprus also offered stakes in some of its banks, but there were no takers in Moscow for that, either. Siluanov also said they were not discussing providing a new loan to Cyprus as the EU has set a debt limit for Cyprus.
Back in Nicosia, worried Laiki employees gathered near parliament for a second day to protest the bank’s restructuring, which would break the lender in two. One side would take on the soured investments to allow the stronger side to survive. Depositors who have their money taken by the government would receive an equity stake in the so-called good bank.
“The bank is finished, we’ll lose our jobs and I’m worried about my kids,” Laiki employee Nikos Tsiangos said, standing behind barricades and a cordon of police that have blocked the way to Parliament. “They’ve brought us to the brink, the Europeans wanted to destroy our economy and they’ve done it.”
The bills lawmakers were considering also included setting up an “Investment Solidarity Fund” to receive donations from the church and to pool revenue from other measures. They were also due to vote on restricting banking transactions in times of crisis.
A vote on the laws had been scheduled for Friday morning, but was pushed back as negotiations continued.
Separately, President Nicos Anastasiades announced there had been agreement for Greek subsidiaries of Cypriot banks to be sold, “with significant benefit for the Cypriot side,” a statement from Anastasiades’ office said.
Europe also turned up the pressure on Cyprus. Luxembourg’s finance Minister Luc Frieden told Germany’s Inforadio that Cyprus “certainly must change a very great deal in its financial sector ….. I see among some euro states little financial room for more concessions to Cyprus.”