Tuesday

26th Jul 2016

Cyprus struggling on bailout Plan B

  • Cyprus banks will stay closed until next Tuesday (Photo: Leonid Mamchenkov)

Cypriot officials are scrambling to find alternative money to put on the table for a €10 billion bailout by the EU and the International Monetary Fund (IMF).

In a sign of the drastic situation on the island, the Cypriot parliament is due to vote on capital controls on Thursday (21 March) to prevent people from taking all their deposits out of banks when they re-open next week.

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But no plan b has emerged yet on where to get the €5.8 billion that the Eurogroup wants from Cyprus in return for a €10 billion bailout.

The original idea - to skim funds from all bank deposits - was rejected by the Cypriot parliament earlier this week.

Cypriot finance minister Michael Sarris flew to Moscow on Wednesday to seek help. He is still there on Thursday, even as top Russian politicians, such Prime Minister Dmitry Medvedev, lambast the EU plan.

The Union has behaved like a "bull in a china shop," Medvedev said.

Adding insult to injury, he suggested Russia may change its euro reserves into a different currency.

"This is big money. But for us, as for any other country, predictability is important … the [bank levy] proposal was not only unpredictable but is evidence of a certain inadequacy," Medvedev added.

Russian businessmen with flush bank accounts in Cyprus were the original target of the bank deposit levy discussed by eurozone finance ministers last weekend.

But the Cypriot government opted to spread the pain among all depositors, including ordinary Cypriots with less than €100,000 in the bank, prompting protests in Nicosia and a backlash in parliament.

Sarris is now seeking some form of financial assistance from Moscow, amid speculation that help might come in return for Russia's energy giant, Gazprom, getting its hands on Cyprus' under-sea natural gas reserves.

At the same time, a delegation of EU commissioners and European Commission chief Jose Manuel Barroso is due in Moscow on Thursday.

The good will trip was planned long in advance. But Cyprus is likely to gatecrash the agenda.

Meanwhile, in Nicosia, officials are also looking at other potential sources of revenue.

Ideas mooted are to nationalise pension funds, to sell what valuable assets the two main banks have left or to issue an emergency bond linked to future gas revenues. A revised bank levy, not touching small depositors at all or in a more modest way, is also being worked on, Reuters reports.

For their part, EU leaders on Wednesday made clear that the €10 billion bailout offer still stands, but only if Cyprus meets the terms of the initial agreement which includes an own contribution of €5.8 billion.

"I regret the vote of the parliament yesterday. But of course we respect it and will now look to see what proposals Cyprus makes to the troika," German Chancellor Angela Merkel told reporters on Wednesday after talking to the EU affairs committee in the Bundestag.

But some German politicians are again raising the spectre of a first-ever exit from the eurozone, just as they did on Greece before it got its second bailout.

Liberal leader Rainer Bruederle said a bankruptcy or eurozone exit for Cyprus would "not be desirable, but with the instruments we have today, it would be manageable."

Finance minister Wolfgang Schaeuble has also said the eurozone now has "better contagion protection mechanisms" to deal with a Cypriot bankruptcy.

In Vienna, a close ally of the German government, Austrian Chancellor Werner Faymann said he "cannot rule anything out for Cyprus."

With time running out in the coming days, the European Central Bank has warned that it will pull the plug on Cyprus' two largest banks in the absence of a bailout deal.

EU Council chief Herman Van Rompuy also voiced urgency."The current, highly uncertain situation is highly damaging, especially for the people of Cyprus, and has to be addressed as soon as possible," he told MEPs.

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