21 Mar 2013

Cyprus rules out bank levy in race to meet ECB deadline

Amid cashpoint queues and rumours of bank closures, politicians scramble to reach a deal on how to raise 5.8bn euros before the Monday deadline imposed by the European Central Bank.

As Cypriot politicians were locked in crisis talks, increasing numbers of concerned customers continued to withdraw what money they could from ATM machines amid concerns that banks could collapse.

Bank employees protested outside Parliament, chanting: “Cypriots wake up! We’re not selling Cyprus!” and riot police also stood guard and the main road was blocked to traffic, according to some Twitter users’ reports.

The Cypriot central bank was forced to deny reports and frantic rumours that Cyprus Popular Bank, the island’s second-largest lender, is to be closed down.

I’ve been to five ATMs, looking for the one with the smallest queue. The others had really long queues, at least 40 or 50 people. Peter Larkin, Nicosia resident

“We deny these reports. Efforts are under way right now to find the best possible solution for this bank,” spokeswoman Aliki Stylianou told state television.


The pressure is now heaped on Cypriot politicians after the European Central Bank (ECB), which has Cyprus’s banks on a liquidity lifeline, said that they had until Monday to get a bailout deal approved by the IMF and the European Union – or that its funds would be cut off.

The politicians on Thursday ruled out the unpopular plans of a levy on people’s bank deposits during crisis talks aimed at finding 5.8bn euros, reports said.

Instead the government hopes a central state investment fund will raise the sum demanded by the EU to guarantee a 10bn euro loan to bail out crippled banks.

The deputy leader of the ruling Democratic Rally party, Averof Neophytou, said that party leaders had unanimously agreed to create a “solidarity fund”, which officials say would bundle state assets as the basis for an emergency bond.

Once a “Plan B” is agreed, it will be voted on in parliament, but Mr Neophytou said he did not expect the proposal to be ready on Thursday.

Banks closed

Amid rumours that the new plan will include a restructuring Cyprus’s second-largest bank, Laiki, long lines of people formed at the bank’s ATMs in the capital (as Channel 4 News producer Julie O’Connor reports below). Although cash machines have been functioning, many have been running out of cash.

“We need cash. We have families, children, grandchildren and expenses, and the banks have been closed since Saturday,” said Andri Olympiou in Nicosia, the capital.

Banks have been shut since an initial bailout plan last weekend proposed the tax on bank deposits, and will remain closed until Tuesday to prevent a run.

“I’ve been to five ATMs, looking for the one with the smallest queue. The others had really long queues, at least 40 or 50 people,” said Peter Larkin, a Nicosia resident who was waiting a queue with his 5-year-old daughter. “There’s a lot of rumours that Laiki is going to go bankrupt and that (their ATMs) will stop giving out money.”

Eurozone exit?

Governor of the Cypriot Central Bank, Panicos Demetriades (pictured above bottom left) said he was confident that a deal would be reached by Monday.

If Cyprus does not even feel that they can attend the call it is a big problem for us. French Eurogroup Working Group member

While a levy is now off the table, officials said that the “Plan B” could include nationalising pension funds of semi-state companies, issuing an emergency bond linked to future natural gas revenue or a revised bank deposit levy, hitting only large investors.

Eurozone finance are deeply concerned about the situation in Cyprus, according to exclusive notes from a Eurogroup Working Group conference call seen by Reuters reporters.

One official referred to “open talk in regards of (Cyprus) leaving the eurozone”, and said that emotions were running “very high”, apparently making it difficult to come up with solutions.

Cyprus was not present during the call, and some of the members present said that this was extremely worrying. “If Cyprus does not even feel that they can attend the call it is a big problem for us,” said the French representative.

VIDEO: Cyprus bailout – who will come to the rescue?

Russian talks

Still in Moscow, the Cypriot Finance Minister Michael Sarris said he was discussing possible Russian investments in the island’s banks and energy resources to reduce its debt burden, as well as an extension to an existing 2.5bn euro Russian loan.

Russian citizens have billions of euros to lose in the island’s outsized and now-teetering banking sector.

“The banks are the ultimate objective in any support we get, so it’ll either be a direct support to the banks or the support that we get through other sectors will be channelled to the banks,” Mr Sarris told Reuters during a second day of talks with his Russian counterpart, Anton Siluanov.

American economics professor Nouriel Roubini tweeted on Thursday that the Russians might want more than just money in exchange for any assistance to Cyprus, suggesting it could demand access to offshore gas reserves and a military presence on the island.

The ECB announced news of its ultimatum on Thursday in a brief, but pointed, two line statement. “The governing council of the European Central Bank decided to maintain the current level of emergency liquidity assistance (ELA) until Monday, 25 March 2013,” it said.

“Thereafter, emergency liquidity assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”