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Cyprus' Fate Hangs In The Balance

Cyprus6Cyprus’ hopes of finding a way to come up with 5.8 billion euros ($7.5 billion) to secure a 10 billion euros ($13 billion) international bailout to save the country’s economy and banks from collapse were dwindling late on March 22 as the government couldn’t agree on a plan.
The Parliament, which earlier in the week by a 36-0 vote rejected Eurozone demands to impose a confiscation tax of up to 9.9 percent on bank deposits, was wrestling with nine separate bills trying to patch together a way out of the economic crisis.
But German Chancellor Angela Merkel, whose country would foot much of the bill to save Cyprus, was taking a hard line and rejected the idea of a solidarity fund in which Cyprus would have put future gas reserve proceeds – if any – along with church properties and other assets to persuade investors to pitch in to save Cyprus.
That could force the month-old government of new President Nicos Anastasiades to go back to the Parliament and convince them to adopt a bank tax, which would be a humiliating retreat for the government. Otherwise, the European Central Bank (ECB) said it would stop providing liquidity to the country’s central bank on March 25, pushing Cyprus toward collapse and default. Merkel urged Cypriots to surrender to the inevitable and said, “Our patience is running out.”
Anastasiades held talks with representatives of the bailout Troika, the European Union-International Monetary Fund-European Cental Bank troika”, which is made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) as leading Cypriot bankers urged lawmakers to reverse themselves and give in to the tax even though there are fears it could lead to a run on the banks and they could collapse anyway.
The original plan was to seize 6.75 percent of deposits under 100,000 euros ($130,000) even though they are allegedly protected by the government against loss, and 9.9 percent on those over that threshold. The lenders want smaller depositors exempted which would mean a bigger tax on wealthier depositors, some 30 percent of whom are Russian. The EU has said it fears Cyprus is being used as a money-laundering haven for the rich and mobsters and want them to pay for the bailout as much as possible, although Anastasiades said that could create a flight of capital from the island.
Cypriot Finance Minister Michael Sarris said a levy “of some sorts” remains “on the table” despite widespread fury among both ordinary savers and large-scale foreign investors. The banks have been closed until March 15 and aren’t scheduled to reopen until March 25. In another development, Greek Finance Minister Yannis Stournaras announced that a Greek banking group had begun acquiring the Greek units of Cypriot banks. The measure would safeguard all the deposits of Greek citizens in Cypriot banks, he said.
Critics of the Eurozone plan have noted that it allows money-laundering havens in Luxembourg, Lichtenstein, Switzerland and London and Cypriots complained they were being made guinea pigs and being forced to pay for a crisis they didn’t create. Cypriot banks lost more than 4.,5 billion euros ($5.84 billion) in bad loans to Greek businesses that failed during that country’s economic crisis and when the Greek government devalued its bonds by 74 percent, a large number of which were held by Cypriot banks.
Bank of Cyprus chairman Andreas Artemis said: “It should be understood by everyone… especially from the 56 members of parliament… there should not be any further delay in the adoption of the Eurogroup proposal to impose a levy on deposits more than 100,000 (euros) to save our banking system.”
With no end in sight to the crisis, businesses in Cyprus have been insisting on payment in cash, rejecting card and check transactions and supermarkets said they only had enough food to last the weekend. “We have pressure from our suppliers who want only cash,” Demos Strouthos, manager of a restaurant in central Nicosia, told Agence-France-Presse news agency.
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Russia’s Finance Minister, Anton Siluanov, speaking after talks with Sarris, said Russian investors were not interested in Cyprus’ offshore gas reserves. Russia gave Cyprus an emergency loan of 2.5 billion euros ($3.2 billion) in 2011. Siluanov said that no new Russian loan had been on the table with Sarris because of limits imposed by the EU on Cypriot borrowing.
However, Russian Prime Minister Dmitry Medvedev later said Moscow had not “closed the door” on possible future assistance. Cypriot leaders must first reach agreement with their fellow members of the EU, he added, the BBC reported.
The country’s biggest banks put a daily limit of 260 euros ($335) on how much money could be taken out of ATM’s amid fears that the banks will collapse unless Cyprus gets rescue monies. The European Central Bank (ECB) warned it will stop providing money to the country’s central bank unless politicians find an answer by March 25.
Cyprus needs a bailout of 17 billion euros ($21.9 billion) but the lenders said they wouldn’t provide that amount fearing it was unsustainable debt which could never be repaid and have insisted on Cypriots paying part of the price for the crisis they didn’t create. New President Nicos Anastasiades, in office a month, warned chaos would ensue if the banks collapse. He supported the confiscation tax after opposing it while he was campaigning.
Uncertainty was growing among Cypriots as the deadline approached and reports spread that the country’s second-largest bank, Laiki Bank, would be restructured. Queues of 40 to 50 people formed at the ATMs of Cyprus Popular Bank, or Laiki, which quickly cut in half the daily limit for withdrawals at ATM’s, many which ran out of cash quickly. The banks have been closed since March 15.
“We need cash. We have families, children, grandchildren and expenses,”Andri Olympiou told the Associated Press after withdrawing money from a Laiki branch in Nicosia. The central bank governor, Panicos Demetriades, urged lawmakers to vote immediately on a legal framework bill to rehabilitate Cyprus’s banking sector. The bill includes restructuring Laiki.
Bank employees protested outside Parliament, chanting “Cypriots wake up! We’re not selling Cyprus!” Scuffles broke out with riot police and the main road was blocked to traffic. Anastasiades held a series of meetings with political party leaders to consider a range of measures that could raise the necessary funds.
The “Plan B” that the Troika rejected would have included restructuring Cyprus’ troubled banks, some form of Russian help, dipping into pension funds and taking up an offer from Cyprus’ wealthy Orthodox church to contribute.
One major lender, Bank of Cyprus, appealed to the government and politicians to reach a plan that Eurozone partners would accept, clearing the way for the bailout. “The Cypriot economy is in a marginal and fragile state. The next move could prove salutary or disastrous,” the bank said in a statement. “It is imperative we immediately proceed with the drawing up of an agreement with the Eurogroup.”
In Brussels, the head of the 17-nation Eurozone’s finance ministers Jeroen Dijsselbloem, said that a one-time tax on bank deposits was “inevitable” given Cyprus’ oversize financial sector. He argued, however, that the burden should be shifted toward taxing big bank deposits of more than 100,000 euros. The original plan was to seize 6.75 percent of deposits under 100,000 euros ($130,000) although those were allegedly guaranteed by the government against loss, and 9.9 percent of those above that threshold.
But if a higher confiscation tax is imposed on those with more than 100,000 euros, there are fears that could spark a run on the banks and massive withdrawals by people, including rich Russians and what EU officials said they suspect are those laundering money from criminal activities, and bring down the banks anyway.
An amended bill that would have exempted deposits of under 20,000 euros in the bank was turned down by lawmakers even though they had said they wanted to protect people with little money in the banks from having part of it seized by the government to pay the cost of the crisis that politicians and bankers created, and for which they want citizens and depositors to pay.
“We appear to be seeing an improved spirit of cooperation on the part of the Cypriot authorities,” said an EU spokesman.  “In particular we welcome the Cypriot authorities’ assurances that they will present in detail to the Troika their alternative proposal for covering the part of Cyprus’ financing needs outside of the agreed financing envelope.

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