Cyprus holds crisis talks after bailout rejection

Protesters outside parliament in Nicosia, 19 March

Political leaders in Cyprus are meeting for emergency talks after its parliament overwhelmingly rejected an international bailout deal.

Cypriot President Nicos Anastasiades is meeting party leaders to hammer out a Plan B after a one-off tax on savings failed to get the support of any MPs.

Germany says banks in Cyprus may never reopen if a bailout is not agreed.

Cyprus’s finance minister is in Moscow to seek help from Russia, which holds multi-billion dollar investments.

Michalis Sarris said after talks with Russian Finance Minister Anton Siluanov: “There were no offers, nothing concrete,” but he added, “we’re happy with a good beginning.”

President Anastasiades is holding the emergency meeting of party leaders and the central bank governor in Nicosia to “examine alternative plans to address the situation that may arise following… the parliamentary vote”, his office said.

Mr Anastasiades, who was elected to the presidency on 24 February, will also hold a cabinet meeting and talks with the European Union, European Central Bank and International Monetary Fund (IMF).

Bank restructuring, a bond issue and more Russian funding are possible options.

Banks in Cyprus have been shut until Thursday to prevent mass withdrawals. The stock exchange remains closed.

The BBC’s Mark Lowen, in Nicosia, says Cyprus is a resilient nation and the banks are still giving out cash through machines – although with some limits.

Politicians in Cyprus, eurozone leaders and the IMF want to hammer out a credible Plan B, he says, but until they have, the banks may well remain closed.

‘Fully respected’

The controversial levy had been proposed as the condition for the 10bn-euro (£8.7bn; $13bn) EU and IMF bailout. Cyprus was expected to raise 5.8bn euros through the one-off tax on bank savings.

The plan was altered on Tuesday to exempt savers with less than 20,000 euros (£17,000), but a 6.75% charge on deposits of 20,000-100,000 euros and a 9.9% charge for those above 100,000 euros remained.

However, parliament rejected the deal, with 36 MPs voting against it, 19 abstaining and none in favour.

Protesters outside parliament reacted with joy at the decision.

Mr Anastasiades said he “fully respected” the vote.

He said he had spoken to Russian President Vladimir Putin, as Cyprus sought alternative financing.

Mr Sarris was meeting Mr Siluanov to discuss the easing of the terms on a 2.5bn euro loan Moscow gave Cyprus in 2011 – and the possibility of further funding – but no deal was reached on Wednesday.

“We had a very honest discussion, we’ve underscored how difficult the situation is,” Mr Sarris said.

Cyprus has attracted money through its lower taxes, with Russians holding between a third and half of all Cypriot deposits.

Russian private and corporate deposits are believed to total about $30bn.

Mr Putin had called the bailout deal “unfair, unprofessional and dangerous”.

Analysts say Russia may provide more funding in return for interests in Cyprus’s offshore energy fields.

One offer of help has come from Cyprus’s Orthodox Church, which is a major shareholder in the third-largest domestic lender, the Hellenic Bank.

Archbishop Chrysostomos I said on Wednesday the Church was willing to mortgage its assets to invest in government bonds.

After Cyprus rejected the bailout, Dutch Finance Minister Jeroen Dijsselbloem said that eurozone finance ministers still stood “ready to assist Cyprus in its reform efforts”.

However, German Finance Minister Wolfgang Schaeuble warned Cyprus that its crisis-stricken banks might never be able to reopen if it rejected the bailout.

Finance Minister Michalis Sarris, 20 March
Finance Minister Michalis Sarris, in Moscow, has no concrete offers yet from the Russians

He said major Cypriot banks would be “insolvent if there are no emergency funds”.

Mr Schaeuble said the banking system in Cyprus was “bloated” and “not sustainable”.

“Someone needs to explain this to the Cypriots”, he said.

Cyprus’s banks were left exposed following the debt crisis in Greece and there are fears Cyprus could go bankrupt if they fail.

Meanwhile, the UK Ministry of Defence said on Tuesday evening that a plane carrying 1m euros had arrived in Cyprus as a contingency measure to provide military personnel and their families with emergency loans.

The money is to be used for British personnel and their families if cash machines and debit cards stop working.

The UK has more than 3,000 troops stationed on the island, with two main bases – at Dhekelia and Akrotiri.

The UK also has tens of thousands of expats living on the island.

One, Gary Winwood, told the BBC the situation was “dire” and there was great anxiety about the possibility of a collapse of the banks.

“Most of our money is kept in deposits in a savings account so I cannot make withdrawals. The cash machines are supposed to be restocked but are often found empty. We’ve got enough money to last us until the end of the week,” he said.


Categories: Business, Politics

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