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Cyprus OK's Partial Bailout Plan

Cyprus66With the clock running fast toward a possible bank collapse and default unless they came up with a plan to raise 5.8 billion euros ($7.5 billion) to secure a 10 billion euros ($13 billion) bailout from international lenders, Cyprus’ agreed to a midnight plan on March 23 to restructure its banks, restricting financial transactions and setting up a solidarity fund.
But they retired for the night before acting on other measures needed to reach the target, which will be brought for a vote over the weekend including a tax of less than 1 percent on all bank deposits, said the deputy head of the governing DISY party Averof Neophytou.
Earlier in the week the lawmakers voted 36-0, with 19 of the DISY members abstaining, against a demand by Eurozone officials to confiscate 6.75 percent bank deposits under 100,000 euros and 9.9 percent on those above the threshold, saying it was legalized bank robbery and blackmail.
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.
The draft laws approved were among nine bills brought to Parliament. Others included the legislation for the overhaul of the country’s banking sector, the newspaper Kathimerini reported and were aimed to appease the lenders and fend off a disorderly bankruptcy within days.The solidarity fund proposal was shot down by troika representatives in Cyprus and Chancellor Angela Merkel, who told German lawmakers that she was against the collateralizing of pension fund reserves.
This sent President Nicos Anastasiades back a revision and back to a confiscation tax on bank deposits. “There will be painful aspects but the country has to be saved,” said Anastasiades via his Twitter account a few hours before the debate in Parliament began.
Key elements include the resolution of Cyprus Popular Bank (Laiki) which is to be Laiki is to be split into a “good” bank and “bad” bank, with all deposits under 100,000 euros, ($130,000) which are guaranteed by the state, going into the good bank. Nicosia says the resolution of Laiki will save Cyprus 2.3 billion euros, about $2.98 billion.
Cyprus wants to merge the good bank with Bank of Cyprus but this would require recapitalization of about 2.2 billion euros ($2.85 billion,) requiring a tax of 20 to 25 percent on deposits greater than 100,000 euros at Bank of Cyprus, a major backtrack for the Parliament which had stood unanimously against confiscation of bank deposits. Anastasiades earlier said such a high bank tax could lead to a capital flight of big depositors. The proposal is expected to be voted on March 23.
Τhe half-finished scheme came after a long day’s journey into a night of high drama, with Laiki Bank employees blocking a road to their workplace to protest what they feared would be the loss of their jobs, protesters screaming outside Parliament, long queues at ATM’s that were running out of cash, supermarkets warning they would run out of food in a few days, and people unable to get enough cash to keep themselves going for long.
In the background hovered another bigger threat: that of the European Central Bank to shut off liquidity to the central bank on March 25, which Anastasiades said would have created an almost immediate collapse of the banking sector and the island’s economy as EU leaders apparently were willing to risk they could contain any damage to the Eurozone if Cyprus went under.
All along, German Chancellor Angela Merkel and EU leaders wouldn’t relent from their insistence that bank depositors who weren’t to blame for the crisis would have to help pay for it, even if that meant the government would have to break its own law of guaranteeing the safety of deposits under 100,000 euros.
While Parliament met, new President Nicos 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.
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.
The finance ministers of the 17-member Eurozone said they would meet on March 24 to review whether Cyprus had done enough to qualify for the bailout and Anastasiades planned to be there, his office said.  European Unionl President Herman Van Rompuy and European Commission President Jose-Manuel Barroso said they were postponing a planned EU-Japan summit in Tokyo due to the Cyprus problem.
EU and bank leaders kept urging the Parliament to find a solution.  “The ongoing efforts to find a solution for the financial situation of Cyprus require our presence in Brussels,” the two said in a joint statement.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.”
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.
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 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.
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 would collapse unless Cyprus gets rescue monies.
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.

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