Cyprus bank crisis: Mounting EU pressure


The BBC's Gavin Hewitt: "These are very, very difficult days"

It is possible to be lulled into thinking that the Cypriot crisis is not acute. Yes, the banks are closed but the cash machines are being refilled.

The queues for money are small. Yet beneath the surface the economy is under strain from the closed banks.

Petrol stations won't accept credit cards any longer. Restaurants want cash.

Stores won't take cheques. Businesses cannot buy or sell. Deals are not being completed. And the banks won't open until Tuesday at the earliest. Cyprus will have been 10 days without working banks.

In truth the country is surviving on a lifeline from the European Central Bank.

It is keeping at least two Cypriot banks afloat. If they collapsed the banking system would soon follow. But the ECB is running out of patience. Yesterday a senior ECB official warned that they could not continue supporting banks without them being solvent - and that cannot be assumed, said the same official.

And today the ECB said it would continuing the emergency funding of Cyprus until Monday. Thereafter the funding could only be considered "if an EU/IMF programme is in place".

The Cypriot President, Nicos Anastasiades, has underlined the urgency by saying he wants a decision "on a Cyprus rescue to be made today (Thursday) at the latest".

During the day the government will unveil what it calls its Plan B. The challenge is to find nearly 6bn euros (£5bn; $7.7bn). That is needed to trigger 10bn euros in rescue loans from the EU and IMF. Without that funding Cyprus will go bankrupt.

Tough choices

The first question is whether the new plan will still involve any levy on bank accounts. When the first deal was announced it was the raid on deposits that triggered protests.

The Cypriot government is boxed in here. If it goes after those with deposits of over 100,000 euros then that could trigger the big Russian investors withdrawing their funds. If that happens it deals a fatal blow to the Cypriot banking sector. One-third of the deposits (30bn euros) are held by Russians.

This has been the source of tension with Germany. Berlin says it cannot ask its taxpayers to bail out Cyprus if that involves protecting wealthy Russians. Chancellor Angela Merkel is insistent that they must make a contribution.

There is a bottom line for Europe's leaders. There will be no bailout unless the Cypriot debt is made sustainable. For that to happen a chunk of debt has to be written off - nearly 6bn euros of it. The original plan was to make depositors take the "haircut" - a slice from their savings. Angela Merkel also believes the banking sector is too large and also unsustainable.

In its hour of need Cyprus is looking to Russia. Under discussion: extending the pay-back term of an existing Russian loan of 2.5bn euros, made in 2011, and whether Russian could buy into a troubled bank. And if Russia plays ball it will strike a hard bargain - perhaps securing an interest in Cyprus's offshore gas industry, yet to be developed.

There are two questions which will be asked of Plan B. Will it convince the EU and IMF that it really does raise the 6bn euros which will allow the Europeans to agree to a bailout? Secondly, will the Cypriot people - angry with the EU and Germany - accept a deal which might still involve depositors being punished?

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

Europe in 2014: Ghosts return

History came back to haunt Europe in 2014, not least with Russia's intervention in Ukraine, the BBC's Europe editor Gavin Hewitt writes.

Read full article

More on This Story


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 20.

    I have every sympathy for the average law abiding Cypriot citizen but the fact is, Cyprus has long been a corrupt economy propped up by dodgy Russian money - would you lend money to this Govt without conditions?

  • rate this

    Comment number 19.

    London is awash with "Russian" money so I can't see Westminster being very happy about the situation

    It looks like the UK has gone as far as she possibly can with her EU membership and what was recently a line in the sand has now become a concrete wall

  • rate this

    Comment number 18.


    I would rather shoot myself in the foot than someone else.At least i get to decide...

  • rate this

    Comment number 17.

    "Good-bye Cyprus, you are the weakest link."

    Remind me, how does that game end?

    German politicians are going to blame everyone for their problems. Russians, brits, the french, the americans. You watch it happen.

    Has anyone read the German national anthem? Seriously, go read it.

    Remember that these are the folk singing "ever closer union" when abroad.

  • rate this

    Comment number 16.

    The EU's reaction to Cyprus is no mess, I think it's calculated. Allowing a minuscule country to collapse is "doable" and will show other countries what happens if they refuse to lower their sifestyle to a level compatible with what they actually produce. After people see what happens when a country refuses EU's terms, the others will "behave" a lot better. Makes sense?

  • rate this

    Comment number 15.


    You could have come up with something a bit more original.

  • rate this

    Comment number 14.

    Good-bye Cyprus, you are the weakest link.

  • rate this

    Comment number 13.

    Please read here why Cyprus is having problems

    Please note the section where it says Government Job salaries.
    An uneducated Civil Servant salary was €2600, whereas the average salary of both private and public sectors in Cyprus was €1987 so if someone with a degree earns less how was this sustainable? Plus they get a one off payoff.

  • rate this

    Comment number 12.

    If the Cypriot banking sector depends on Russians and their 30bn euros then it deserves to go to hell. Same with the Seychelle Islands banking sector and other money laundering machines. The EU officials should start to think finally about how to save the Cyprus population, to build and open some real and productive jobs, and leave the banks alone with their own mess.

  • rate this

    Comment number 11.

    Subjects of Her Majesty may wonder why she, and her firm, invest nearly exclusively in bank shares, and have done for generations, since the very beginning of banking in Holland.

    If you control the state and you own banks, you can lend money to the state from your bank, and then no matter what happens, war or peace, good times or bad, you always win. Tax revenue becomes your income.

  • rate this

    Comment number 10.

    The risk of a chain reaction if Cyprus defaults is so great that the EU will eventually fold and cough up the cash.

    And then watch for people in Ireland, Greece, Portugal and Spain, who were forced to accept swingeing terms for their bailouts to start going ballistic!

  • rate this

    Comment number 9.

    Bailout or no bailout, sooner or later the Cypriot banks will have to open, they cannot be kept closed indefinitely. When that happens both local and foreign clients will withdraw their deposits en masse- confidence has disappeared. Given the shaky state of other banks in the Eurozone, especially in Spain, their depositors will start taking out their money as well. Finis Euro and EU.

  • rate this

    Comment number 8.


    "For once, somebody should let their banks go bankrupt"

    Easy enough to say, so long as it isn't the bank that you have all your savings, investments & pension with. The problem has always been the chain reaction risk. As ever it is the little people who suffer from all of this, ordinary Cypriots unable to access their own money, effectively made prisoners on their own island.

  • rate this

    Comment number 7.

    "For once, somebody should let their banks go bankrupt."

    You need to think of banks as highly unpleasant donkeys chained together, walking along a cliff. Howsoever just and reasonable it might be lose one donkey, you lose one and you lose the lot.

    What we need is for banks that have been paid for by the public to make profits for the public. It is the bank shareholders who own the system.

  • rate this

    Comment number 6.

    Best thing for Cyprus to do is default. Cyprus will not vanish in a puff of smoke. Other countries such as Argentina did it and still exist.

  • rate this

    Comment number 5.

    It's appalling what EU, IMF and ECB are doing to Cyprus, one of the smallest nations in EU. If this happened in our schools we would call it bullying and we wouldn't allow it. So why is this allowed in this case? Germany in particular should be ashamed for it. I now support Cyprus to leave EU and I feel more understanding to the Brits that they want to have a referendum on EU.

  • rate this

    Comment number 4.

    Time for the people of Cyprus to keep their nerve and call the EU/German bluff. If Cyprus left the Eurozone, either forced out or willingly, then this could set a precedent for Greece, Portugal, Spain and threaten the whole structure. The clowns in the EU would not risk losing their gravy train nor the Germans risk losing their captive markets,

  • rate this

    Comment number 3.

    For once, somebody should let their banks go bankrupt. No floating up assets, no bail-outs, no transfer of debts from the private sector to the public, no austerity to cover for the bankers. Deposits under 100,000 euros are guaranteed by the ECB anyway - and should have been enough for a less ridiculous Plan A. If Russia wants to secure their citizens' money, they can buy the banks themselves.

  • rate this

    Comment number 2.

    So the game of brinkmanship continues. Cypriot banks lose their trousers over the loans they made to Greece which were given such a severe 'haircut' by the EU that their head fell off. The EU then threaten Cyprus, Cyprus respond to the threats by saying 'Well if you won't help us, we'll speak to our friends in Moscow.' And the EU was awarded the Nobel Peace Prize? Ha!

  • rate this

    Comment number 1.

    Russia will not move into Cyprus. Two reasons. Firstly, it is economically useful precisely because it is a member of the EU. If it is not, none of those Russian firms will "launder" their cash there. Secondly, if Russia wanted to start playing regime change in German colonies, Latvia is first and foremost on the list. Hence their rush to join the Euro.
    Russia might rent Cyprus, if it stays Euro.


Page 22 of 22



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.