Thousands of bank employees protest outside the Finance Ministry in Nicosia yesterday.
NICOSIA: Cyprus said yesterday it would tax big savers at its largest bank in a dramatic U-turn as it raced to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse.
The island’s finance minister, Michael Sarris, reported “significant progress” in talks with international lenders, with the clock running down to a deadline set for tomorrow for Cyprus to clinch a bailout deal with the EU or lose emergency funding for its stricken banks and risk tumbling out of the eurozone.
His counterparts in Europe’s 17-nation currency union scheduled talks in Brussels this evening to see if the numbers add up, taking the crisis down to the wire.
President Nicos Anastasiades, barely a month in the job and wrestling with Cyprus’s worst crisis since a 1974 invasion by Turkish forces split the island in two, was due to lead a delegation to Brussels, also today, to meet heads of the EU, the European Central Bank and International Monetary Fund, in a sign a deal might be near.
“Hopefully by tomorrow in Brussels we will have the agreement of our partners,” Averof Neophytou, deputy leader of the ruling Democratic Rally party, told reporters.
Government officials held talks through the day at the finance ministry with Cyprus’s ‘troika’ of lenders — the EU, ECB and IMF. Angry demonstrators outside chanted “resign, resign!”
Its outsized banking sector crippled by exposure to crisis-hit Greece, Cyprus needs to raise ¤5.8bn in exchange for a ¤10bn EU lifeline to keep the country’s economy afloat.
But in a stunning vote on Tuesday, Cyprus’s 56-seat parliament rejected a levy on depositors, big and small, as “bank robbery”, and Finance Minister Sarris spent three fruitless days in Moscow trying to win help from Russia, whose citizens have billions of euros at stake in Cypriot banks.
Rebuffed by the Kremlin, Sarris said yesterday talks with the troika were centred on a possibly levy of around 25 percent on savings over and above ¤100,000 at failing No. 1 lender Bank of Cyprus.
In a sign of how fluid the situation remains, however, a senior ruling party lawmaker said other options were on the table, including a “voluntary haircut” that would not require parliamentary approval or an 11 percent levy on big deposits at Bank of Cyprus that would. Arriving at the troika talks, Andreas Artemi, chairman of Bank of Cyprus, was asked if a 25 percent haircut was being considered on uninsured deposits. He replied: “I don’t know that yet.”
It was far from certain that a majority of lawmakers would back a revised levy.
Ordinary Cypriots were outraged by the original proposal, and have been besieging cash machines ever since bank doors were closed last weekend on the orders of the government to avert a massive flight of capital.
Racing to placate its European partners, Cypriot lawmakers voted in late-night session on Friday to nationalise state pensions and split failing lenders into good and bad banks — a measure likely to be applied to No. 2 lender Cyprus Popular Bank , also known as Laiki.
They also gave the government powers to impose capital controls, anticipating a run on banks when they reopen on Tuesday.
The plan to nationalise semi-state pension funds has met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a deposit levy.
“In our view, the pension fund cannot be made part of the rescue plan,” Volker Kauder, parliamentary leader for German Chancellor Angela Merkel’s Christian Democrats, told the Berliner Zeitung am Sonntag.
The bank restructuring has also angered Cypriots. Around 1,500 bank workers yesterday marched on the presidency, holding banners that read, “No to the bankruptcy of Cyprus” and “Hands of workers’ welfare funds”. The pace of the unfolding drama has stunned Cypriots, who in February elected Anastasiades on a mandate to secure a bailout and save banks whose capital was wiped out by investments in Greece, the epicentre of the eurozone debt crisis.
Then news of the levy on bank deposits broke, an unprecedented step in Europe’s handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.
Cypriots leaders had initially tried to spread the pain between big holdings and smaller depositors, fearing the damage it would inflict on the country as an offshore financial haven for wealthy foreigners, many of them Russians and Britons. The tottering banks hold ¤68bn in deposits, including ¤38bn in accounts of more than ¤100,000 — enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.
But panicked by the visceral reaction of ordinary Cypriots, support from lawmakers fell away and they rejected the levy as “bank robbery”.
Under the latest proposal, Russians are unlikely to be hit hardest by the mooted 25 percent tax, given that just five percent of deposits at Bank of Cyprus come from Russia, according to the bank’s latest results statement.
Reuters
