With its back against the wall and facing a March 25 deadline to try to come up with a plan that would bring in 5.8 billion euros ($7.5 billion) to release a 10 billion euros ($13 billion) international bailout, the government of Cyprus was mulling a new series of schemes, including putting up possible gas reserves, church properties and pension funds as collateral.
Nine bills were submitted to Parliament by late in the night of March 21 after emergency sessions of President Nicos Anastasiades’ government failed to come up with anything and Russia balked at assisting, beyond extending the term of a two-year 2.5 billion euros ($3.22 billion) loan.
Thousands of Cypriots gathered outside the Parliament to show their continued defiance to the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that had demanded the government confiscate up to 9.9 percent of bank accounts to help pay for an economic crisis caused by Cypriot banks overextending themselves with bad loans and theri holdings in devalued Greek bonds.
Enraged Cypriots said they don’t want their country to submit to what they called bank robbery and the Parliament responded with a resounding 36-0 vote against the Eurozone proposal that had been submitted to them by new President Nicos Anastiades who only a few weeks before opposed the scheme during his campaign.
One of the ideas being considered was the sale of the Laiki Bank, sending workers into a frenzy as they tried to rush the bank late in the day where protesters were gathering in Nicosia, and as long lines formed at ATM’s because banks, which have been closed since March 15, won’t reopen until March 25 at the earliest.
That’s also the deadline the ECB has given to the government to find a way to come up with the 5.8 billion euros before liquidity to the island country’s central bank will be shut off, which could lead to an immediate collapse of the banks and the economy and trigger unrest about the integrity of the Eurozone, which comprises 16 other countries along with Cyprus, including Greece.
Cyprus now is reportedly considering the creation of a national solidarity fund and the winding down of the country’s largest lender, Cyprus Popular Bank (Laiki), in a bid to secure the bailout that would prevent the collapse of the island’s financial sector next week.
The ECB’s threat spurred Cyprus’s political leaders into a frenzy and they agreed on the formation of an investment fund that would be securitized with social security fund reserves, state assets, Church property and expected natural gas revenues – if any, that are unlikely to come until 2020 or later. The formation of the fund was included in legislation submitted to the House of Representatives.
Another key bill also contained the plan for placing Laiki in resolution. It foresees the lender’s nonperforming loans being transferred to a “bad bank” and deposits under 100,000 euros, which are guaranteed, being placed in a “good bank.” Uninsured deposits would be placed in the bad bank.
The website newsit.com.cy said also under consideration is for banks to seize homes, cars and properties of people who aren’t paying their mortgages, loans and credit cards even though the government has instituted austerity measures already on demand of the Troika, similar to those in Greece.
The deputy leader of conservative DISY party, Averof Neophytou, said that the winding down of Laiki would save Cyprus 2.3 billion euros ($2.96 billion) leaving it to find another 3.5 billion euros ($4.51 billion) from other sources in order to reach an agreement with the Troika for the bailout.
The Troika wanted the government to confiscate 6.75 percent of bank deposits under 100,000 euros ($130,000) and 9.9 percent above that that threshold but Parliament rejected it. Neophytou, whose party abstained from voting, said that 361,000 out of 379,000 accounts in the bank contain less than 100,000 euros. He also said 8,000 jobs at the lender would be saved.
The debate in the Cyprus Parliament started shortly after scuffles outside the building between riot police and staff and depositors at Laiki who had heard the lender was being shut down. Due to liquidity concerns, cash withdrawals from the bank’s ATMs were limited to 260 euros, about $335, while business were insisting on cash only, cashing a shortage of food, gasoline and other essentials with people running out of cash.
The Governor of the Central Bank of Cyprus, Panicos Demetriades, said that without the resolution process, Laiki “would be driven to immediate bankruptcy and termination of business, with devastating consequences for employees, depositors as a whole, our banking system and the economy.”
Following a Eurozone conference call, Eurozone finance ministers said in a statement they were prepared to discuss Cyprus’s new plan, urging Nicosia to have it ready “as soon as possible” so it could be reviewed by the Troika. “After the conclusion of such negotiations the Cyprus authorities should begin legislating the elements of such an agreement,” said the statement, adding that deposits under 100,000 euros should be guaranteed.
In Russia, Finance Minister Michalis Sarris was holding talks with his counterpart Anton Siluanov and Energy Minister Giorgos Lakkotrypis in a last desperate bid by Cyprus to get help from the Kremlin, although the stakes could be high with Russian President Vladimir Putin pressing for gas reserves, a stake in a bank and even a naval base on the island where the British have one now, which would give Russia a toe hold in an EU country. Moscow reportedly was agreeable to extending a 2.5 billion euros ($3.22 billion) loan granted in 2011.
Sarris made it clear that Cyprus was not seeking a new loan from Moscow and had given up on the prospect of convincing the Russians to invest in the island’s banks. The possibility of Russia investing in Cyprus’s solidarity fund could not be discounted.
Russian Prime Minister Dmitry Medvedev reiterated his anger at the initial decision by Cyprus and the Eurozone to impose a tax on deposits at Cypriot banks where Russians – including what the EU suspects are those laundering money – hold about 30 percent of the 68 billion euros ($87 billion) in accounts. He added that Nicosia would face lawsuits from Russia if its depositors end up losing money as part of any solution.
Underscoring the severity of the crisis, the Eurozone released a statement that said:
The Eurogroup held a teleconference to take stock of the developments in Cyprus.
The Eurogroup stands ready to discuss with the Cypriot authorities a draft new proposal, which it expects the Cyprus authorities to present as rapidly as possible.
The Eurogroup would subsequently, on the basis of a Troika analysis that needs to be undertaken, be prepared to continue negotiations on an adjustment programme, while respecting the parameters defined earlier by the Eurogroup. After the conclusion of such negotiations the Cyprus authorities should begin legislating the elements of such an agreement.
The Eurogroup reaffirms the importance of fully guaranteeing deposits below EUR 100.000 in the EU.
The Euro area Member States continue to stand ready to assist the Cypriot people in their reform efforts and stand ready to ensure the stability of the euro area as a whole.
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