Thursday

7th Jul 2022

Cyprus MPs pass bank laws, start bailout talks

Cyprus edged back from the brink of bankruptcy on Friday (22 March) after MPs agreed to a series of emergency reforms in a bid to avoid financial meltdown and a traumatic exit from the euro.

Facing a Monday deadline (25 March) to agree on a rescue package before the European Central Bank withdraws its emergency lending programme from Cypriot banks, MPs adopted legislation to restructure the country's fragile banking sector by giving the government the power to split up institutions into 'good' and 'bad' banks.

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Cyprus will also set an unwanted precedent by becoming the first eurozone country to introduce capital controls. Limits on bank withdrawals and transfers of funds will come into place when Cyprus' banks open for business on Tuesday (26 March).

The controls are an attempt to avoid a run on the country's fragile banks, whose balance sheets amount to around eight times the size of the island's economy, after a week of lockdown.

MPs also voted to create a solidarity fund to pool state assets.

After three days of talks with Russian government officials in Moscow failed to deliver a promise of new funding, Cyprus has been forced to refocus its attention on an EU bailout.

Despite MPs decisively rejecting the EU's €10 billion package on Tuesday (19 March) amid large public protests, EU leaders have refused to increase the size of the loan.

Dutch finance minister Jeroen Dijsselbloem, who chairs the Eurogroup of the 17 finance ministers who countries use the euro, warned that Cyprus would not be able to repay a bigger loan. "Anything above €10 billion would not allow them to make a restart," he said.

Deputies in the 56-member House of Representatives will reconvene on Saturday and are set to vote on a revised deposit levy expected to fund the bulk of a €7 billion contribution by Cyprus as a condition of its €10 billion bailout package.

Plans to raise €5.8 billion via a 6.75 percent hit on savings between €20,000 and €100,000 and a 9.9 percent levy on deposits over €100,000, led to Cypriot MPs rejecting the initial bailout offer by eurozone finance ministers.

However, while the proposal to be voted Saturday is set to exempt all savings below €100,000 in conformity with EU rules on deposit guarantees, it could see big deposits facing a levy of up to 15 per cent.

Finance ministers will then meet in Brussels on Sunday (24 March) with a view to reaching agreement on a rescue package. The meeting, which EU officials warn could last well into Monday morning, will also be attended by IMF boss Christine Lagarde.

For their part, European Council President Herman van Rompuy and European Commission counterpart Jose Barroso shelved next week's EU summit with Japan to focus on the Cypriot crisis.

In a statement, the EU leaders said that "the on-going efforts to find a solution for the financial situation of Cyprus require our presence in Brussels."

Eurogroup boss: Cyprus levy is 'inevitable'

Eurogroup boss Jeroen Dijsselbloem told MEPs on Thursday that Cypriot savers will have to lose money no matter what the final shape of the bailout deal.

Cyprus struggling on bailout Plan B

With no firm offer from Russia, Cypriot officials are scrambling to find alternative money to secure a €10 billion EU bailout.

Analysis

Cyprus 'business model' was no mystery to EU

EU politicians are saying Cyprus must scrap its "unsustainable business model." But data shows the writing was on the wall ever since the island joined the euro, five years ago.

Eurozone agrees Cyprus bailout 2.0

Cyprus' Laiki bank is to be wiped out. Depositors in Bank of Cyprus will also take a hit under a new bailout deal. But details remain sketchy.

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