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 60.

    There is too much at stake for the EU to let Cyprus pull the whole show down over the sake of 7bn EUR. They will end up bailing them out with string attached that the EU has dibs on their oil & gas reserves, that way they'll make more back then they stump up now - that how Merkel will sell it to the German tax payer. All this has been is testing the water exercise which has spectacularly failed

  • rate this

    Comment number 59.

    49 Peruchik

    "Germany borrows the money for bailouts at negative interest rates & charges the borrowing state interest too. It effectively gets paid to borrow the money in the first place + interest"

    Where can you borrow money at negative interest rates? You must tell us so we can all rush there to get some too. They'll be swamped !

    Sounds more like cloud cuckoo land

  • rate this

    Comment number 58.

    @32 Not so. The UK has considerable deposits of shale gas so does not require any gas Cyprus may or may not have.
    You don't need to bring the gas here !

    You sell those rights to be developed by multinationals
    You take a cut of the gas extracted

    The gas itself will probbly be sold to somewhere like Germany etc



    You make a profit !!!

    ...sound of trumpets...


  • rate this

    Comment number 57.

    We in the UK are warned!

    “Banking was conceived in iniquity and was born in sin. The bankers own the earth... take away from them (the power to create money), and... this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.”
    ~Sir Josiah Stamp, Director the Bank of England, 1928

  • rate this

    Comment number 56.

    Every time the gun gets put to Merkel's head, she backs down. The survival of the Euro is too important to Germany and Europe's political elite. I think the Cypriots ought to realise they have all the power in this negotiation. Merkel is not going to allow a country to leave the EU and set a precedent over Euro 7 billion. The Emperor (Empress?) has no cloths on!

  • rate this

    Comment number 55.

    USA are kicking the can still to avoid the fiscal slope.The EU are doing exactly the same thing.Merkozy should have kicked Greece out a year and a half ago,they didnt.

    1 Were they stupid?
    2 Did pride make them do it?



  • rate this

    Comment number 54.

    No country does anything for pure good will -concerning Germany, there is a very tangible reason for underpinning Eurozone bailouts. One of the main quirks of being in the single currency for Germany is the effect on their export market, and the pinning of the currency at an artificially low value compared to having an independant currency. They get a very good deal from the Euro.

  • rate this

    Comment number 53.

    @38 Completely agree.
    Greece is responsible for Cyprus being a member of the EU, if they were not accepted, Greece would have blocked PL and CZ from joining. The EU needs to think before expanding further. Removing Cyprus will be a clear warning to Greece.
    The deal being offered to Cyprus isn't a “tax”, depositors get an equity stake in the bank in exchange for their seized deposits.

  • rate this

    Comment number 52.

    #42 TPR

    " the IMF classified it amongst the 31 most advanced economies in the world"

    -- They were restricted until then by the Cypriot pound -- then they ´went Greek´

    "When the European Union agreed to accept Cyprus as a new member in 2004, the Greek Prime Minister Costas Simitis , said in Nicosia, “We have finally achieved Enosis,”

    -- Greece and Cyprus are ONE !

    --throw them out !

  • rate this

    Comment number 51.

    @32 Not so. The UK has considerable deposits of shale gas so does not require any gas Cyprus may or may not have.

    @38 Agreed. Most people don't know (or remember) how Greece blackmailed the EU in order to get Cyprus admitted as a member. Cyprus should never have been accepted as a member because it isn't even a part of Europe geographically, surely the first criterion a country should meet.

  • rate this

    Comment number 50.

    Why doesn't Britain simply bail Cyprus out for 7Billion and get a bucketload of oil and gas rights in return?

    Is that too complicated? lol

  • rate this

    Comment number 49.

    @44.D Bumstead
    @26 You forget that Germany picks up the tab for over 25% of ALL bailouts, which amounts to 100s of billions so far. Germany's financial possibilities are not limitless, Merkel has said so repeatedly

    Germany borrows the money for bailouts at negative interest rates & charges the borrowing state interest too. It effectively gets paid to borrow the money in the first place + interest

  • rate this

    Comment number 48.

    Depositors in ALL banks are investors. Your cash is at risk. Indeed, less than 10% of it is kept in the bank's vault, under FRB it has embezzled the remaining 90% and lent it out on speculative investments like Greek government bonds which were "hair cut" 50%!

    Under our grotesque Fractional Reserve System, all banks are inherently insolvent & inherently speculative.

    Pull your money out today!

  • rate this

    Comment number 47.

    Let the pack of cards collapse. Then, just like any other failed enterprise, depositors will become creditors.

    Under ECB rules, the first €100K of deposits is protected. Anything above will earn a proportional share of the residual asset. ie not a lot.

    Anyone with any sense and more than €100K uses more than one bank. If anyone has almore than €100,000 in one bank that was his choice.

  • rate this

    Comment number 46.

    Why is it that your average person cant understand a global catastrophe is on the cards.Do they not understand past banking catastrophes,ponzi schemes or do they just think the powers that be would never set up banking in this way?

  • rate this

    Comment number 45.

    The EU must accept some culpability for Cyprus's predicament in allowing the risks of developing a grossly out of proportion banking sector. They should give the island a bail out in a long term loan with Med Sea gas sales as collateral. The dont need the Russians.

  • rate this

    Comment number 44.

    @26 You forget that Germany picks up the tab for over 25% of ALL bailouts, which amounts to 100s of billions so far. Germany's financial possibilities are not limitless, Merkel has said so repeatedly.

    Her biggest mistake was that she did not say "Nein!" when the first bailout for Greece was being discussed. Maastricht and Lisbon specifically forbid ALL bailouts and she knew this very well.

  • rate this

    Comment number 43.

    Can anyone tell me what proportion of the Cypriots with bank accounts keeps more than 20000 euros just sitting in their bank account? Anyone would think that most of them have at least that and that the majority have very much more. And while I am asking the question, how does that proportion compare with the UK? What proportion of people with bank accounts habitually keep £15000 just on standby?

  • rate this

    Comment number 42.

    The reason that two cypriot banks are in serious trouble is that the Troika stole over half their investments in Greece. The focus on Russian money (which has nothing directly to do with the banks being trouble) is essentially a cover story to shift blame from their policies. when Cypus adopted the Euro(2008), the IMF classified it amongst the 31 most advanced economies in the world

  • rate this

    Comment number 41.


    Most people, day to day rely on banks to pay their bills, recieve their salary etc - they have little choice. The problem is that the contagion is manifest throughout the entire system - what do you expect people to have done since 2008, recieve their wages via magic beans?


Page 20 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.