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, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 100.

    Sure, Cyprus is another disaster, but is a tiny issue when looked at as part of the whole vast EU armageddon. It must have become abundantly to anyone who can string a sentence together that the EU and its 'one size fits all' model, is just a mound of porcine egesta.

    Can we leave now please?

  • rate this

    Comment number 99.

    77"Perhaps Russia will come to the rescue"

    Why would Russia rescue banks that protect thieves who stole Russia's money and evaded its taxes. Russia is ruled by two criminal classes, the kleptocrats who stole the country's wealth (one day it belonged to the entire society under communism, the next only a few under capitalism) and the FSB/KGB who hold the real political power.They're enemies.

  • rate this

    Comment number 98.

    The Dutch have been leading the squeeze on Cyprus. Why? Take a look at this below.

    "In February this year, 755 businesses and institutions (excluding one-man businesses) in the Netherlands were declared bankrupt. This is the highest monthly number ever recorded."

    They are no doubt starting to think that they have enough problems at home.

  • rate this

    Comment number 97.

    Sergei Magnitsky discovered huge Russian tax fraud: $230M stolen from Russian Govt. Four yrs after his death, he's part of banking crisis sweeping up Russian money launderers. Cyprus is struggling to stave off bankruptcy with a $13B bailout, but Eu does not want to bailout oligrachs using Cyprus as a tax haven. On Wed. Cyprus pleaded for an alternative loan from Moscow; so far no results.

  • rate this

    Comment number 96.

    It's nothing less than grand theft EU modelled after the game grand theft auto. The UK better watch carefully as we have been promised a refarendum on the whole issue on whether to stay in or get out seems they are helping us make our mind up.

  • rate this

    Comment number 95.

    69 No disagreement about that!

  • rate this

    Comment number 94.

    91. Trout
    Sorry, I couldn't specify: world limit.

    Ltd Liability would apply to products purchased by consumers. Consumers can choose knowing that shareholder liability for a wayward product may be limited.

    However, fractional reserve banking is fraud - not a wayward product - and Directors would be liable. :)

  • rate this

    Comment number 93.

    Same old story - political elite are not interested, have their own interests to protect, to incapable, to stupid to tackle the bankers and spivs who caused this mess so they come up with a package that hits the ordinary savers in Cyprus instead.
    The peoples representatives rejected the proposal.
    Well thats democracy isn't it?
    So lets carry on anyway - is democracy another victim of the bankers?

  • rate this

    Comment number 92.

    85. Trout
    So stealing from everyone else unconnected to that bank is your solution?

    1. Create "Moral hazard": Banks know they get bailed out when they behave recklessly! By doing this you prevent Capitalism's purging of these banks from our society, and instead allow them to grow and inflict even more pain tomorrow.

    2. Socialise a private misery onto the general public. Immoral much?

  • rate this

    Comment number 91.

    87. Bastiat

    Those are fine if you wish our economy to revert to a pre-19C one. Very few would risk innovating to start a business if they faced unlimited liability and could lose everything, present and future, they owned if the risk went wrong. Just like no-one would drive were there no driving regulations if they risked a murder charge if they harmed someone by accident.

  • rate this

    Comment number 90.

    "Having committed billions to bailing out other fringe euro zone economies, northern European taxpayers have little appetite for more. That is especially true for Cyprus which Slovakian Finance Minister Peter Kazimir told reporters has a business model based on “low taxes, network of lawyers and accountants, as well as hidden 'shadow' companies.”

    (Source ekathimerini)

  • rate this

    Comment number 89.

    @81 Pan Albert

    Im still waiting for an apology,you are a sad pathetic little individual.Sarkozy was ousted May 2012...

    Is it now May 2014???

    Get your dates correct please.

  • rate this

    Comment number 88.

    87 - just make bankruptcy really really difficult.

    France allows bankrupcy, but in the overwhelming majority of cases you still have to repay all the money you owe, CCJ equivalents, fines etc. hence it's rather unpopular and the banks are willing to make unsecured loans at low rates (5%) because they will get the money back, from you or your estate.

    Works well for business liabilities too.

  • rate this

    Comment number 87.

    We need reforms with TEETH, in addition to the good ideas of 84. 32gers...

    Remove Limited Liability and Personal Bankruptcy laws. These shield Directors from the damage their businesses inflict while under their direct stewardship.

    Imagine seeing negligent Bankers personally liable for their actions, & being forced to sell their mansions & work to pay restitution to victims. :P

  • rate this

    Comment number 86.

    @81 Pan Albert

    If you havent noticed,we are no further on than we were a year and a half ago.Your comment shows nothing but sheer ignorance.Ad-Hominem

  • rate this

    Comment number 85.

    Can someone explain why should governments allow regular businesses to go bankrupt, but not Banks?"

    If you lost all your savings because the bank you had them in went bust, would you be thrilled? If not, you have your answer.

    On the main question: Germany's playing a dangerous game if it thinks letting Russia establish a strategic stranglehold over Cyprus is a great idea.

  • rate this

    Comment number 84.

    Easy solution, protect the insured deposits, let the rest pay as required.

    As it says when you signed up to lend money to a bank the losses should run:

    Accounts over the 100000€ insured deposits

    Then the cyprus government just has to support what they agreed to support and not a bloated, lying commercial sector (also known as bankers the world over)

  • rate this

    Comment number 83.

    #75 DB

    -- Thanks -- I see my link data is incomplete. Have taken some info from Greek (English) blogs.

  • rate this

    Comment number 82.

    Can someone explain why should governments allow regular businesses to go bankrupt, but not Banks?
    Why are banks a sacred cow?

    When Capitalism punishes bad business with bankruptcy, purging society of its presence, it rewards the well run competitors with market share (to their's and society's mutual benefit); Why don't we allow capitalism in our banking sector? It's working in Iceland.

  • rate this

    Comment number 81.

    55. Whizz1967

    You would a trifle more credible if you stopped talking about "Merkozy", meaning Merkel + Sarkozy. The latter lost the election 2 years ago and is no longer France's president. It helps to read the newspapers, at times.


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