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

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  • rate this

    Comment number 120.


    Clearly you have some serious personal issues againsts Greece and Cyprus. This is a blog to discuss the situation with the economy and you are just consistently twisting the facts to slag off Greece. Remember Europe owes a lot to Greece and perhaps its own existence. Even its name 'Europe' is Greek. Show some respect!

  • rate this

    Comment number 119.

    What a mess. And who's the bailout for, anyway? Not Cypriots. Just their banks' institutional creditors, a fair chunk of which are based in Germany anyway. read more here:

  • rate this

    Comment number 118.

    IN GOD we trust ?

    --ALL others pay cash !

  • rate this

    Comment number 117.

    Astounding to see how the EU treats one of its members, which, in its desperation, has now gone to Russia for help.

    Keep it up EU. Cyprus may be an insignificant part of your economy, but you are not teaching anyone any lesson with your pettiness. You are instead losing the hearts and minds of many more than just Cypriots.

    Only lesson learned is don't trust and don't count on the EU.

  • rate this

    Comment number 116.

    If it wasn't so serious it would be a good script for 'Yes Minister'...

  • rate this

    Comment number 115.

    What surprised me was how this story surfaced from nowhere ...

    ... If there are similar crises building elsewhere, why aren't they being reported?

  • rate this

    Comment number 114.

    So stealing from everyone else unconnected to that bank is your solution?"

    You didn't (AGAIN) answer the question: would you be happy to lose all your savings because you had them in a bank or banks that went bust? We have no way of determining the financial strength of banks after all. There are plenty of examples of "stealing" to fund unconnected risk: this is called "insurance".

  • rate this

    Comment number 113.

    109. Trout
    "Jefferson and his fellow colonists were hardly subject to "absolute despotism"
    What about that certain despot, George III of Great Britain?
    "The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators was probably the prime cause of the revolution."
    ~Benjamin Franklin (putative)

  • rate this

    Comment number 112.

    After bailouts in US, GB and Europe, haven't we learned our lesson? Let the banks fail, clean up the mess and institute tough rules for banks to form and operate. Fractional Reserves and Limited Liability must go. Make CEO's liable for losses and liable to jail. NO fire sale of Natural assets (that amounts to blackmail). Realign economy along realistic lines, not Finance and tax havens.

  • rate this

    Comment number 111.

    "THE GOVERNMENT has achieved consensus on the setting up of an Investment Solidarity Fund in a bid to raise the required €5.8 billion that would unlock the EU/IMF’s €10 billion financial assistance package for Cyprus."

    Greece and the Cypriot Church will ´buy´ a large part of the bonds

    --and the EU tax payer will get again cheated and lies-- as with Greece !


  • rate this

    Comment number 110.

    I''ve made a real effort to be less reliant on my bank for making payments etc.I've shopped locally, paid in cash etc, i've withdrawn cash to pay for food and general living expenses, and guess what! i've saved some money for the first time in many years, it's not in a bank though! The Banks only remit is to make money out of us, so if you don't like that, stop letting them.

  • rate this

    Comment number 109.

    Bastiat: posting what you regard as apposite quotes from current and historical characters is all very charming rhetoric, but doesn't really sustain a meaningful argument. Even by the standards of today, let alone 1776, Jefferson and his fellow colonists were hardly subject to "absolute despotism", though it suits US creation mythology and the NRA to keep saying so.

  • rate this

    Comment number 108.

    The worms are turning and this is weakening the whole EU/Euro structure. You only have to ask why the EU bureaucrats are trying so hard to keep Cyprus in the fold. For they know that if they fall so will the house of cards. The Euro is doomed and the EU itself may well be mortally wounded. The big issue is that there are others who are just lining up.

  • rate this

    Comment number 107.

    Nothing could show more clearly that yielding to blackmail invites more of the same than what's now happening with Cyprus. It got them into the EU after they welshed on the deal they were offered for entry. Now they're trying to use the threat of pledging "their" gas to Russia to extort soft terms for a bailout from the EU. Time to say "no dice" - and mean it. If that means they exit the EU, good.

  • rate this

    Comment number 106.

    The EU made laws protecting deposits up to €100k.

    "When the government breaks the law in order to enforce it... it becomes a law unto itself, and the rule of law dies, as they decide whom to target and whom to trap."
    ~ Judge Andrew Napolitano

    "We the People under absolute despotism, have the right, the duty, to throw off such government"
    ~Thomas Jefferson

    That's why we need a 2nd amendment :)

  • rate this

    Comment number 105.

    Beware the Germans bearing gifts!!!!

    Well at least even Frau Merkel cannot drive her panzers over open water.

    Ref. money laundering Russian oligarchs, why just Cyprus? I assume that the likes of Abramovich cleans his in London.

  • rate this

    Comment number 104.


    " The deputy leader of the ruling Democratic Rally party, Averof Neophytou, said party leaders had unanimously agreed to create a "solidarity fund" with state assets, which would be used for an emergency bond issue, Reuters reported."


    -- This is only the beginning of the next theft !

  • rate this

    Comment number 103.

    If the EU can demand that a Country takes money from the Bank Accounts of its people when does the Eu get into forced labour?

  • rate this

    Comment number 102.

    It looks like the theft from peoples accounts has now been averted, its the ordinary people I am refer to here. But the EU has crossed the line, they were quite happy for this to happen and promoted it. Local democracy saved the day for the Cypriots, and its local democracy that the EU wants to destroy. Bit like the setup in the "Hunger Games" me thinks!

  • rate this

    Comment number 101.

    Russian lawyer, Magnitsky traced laundered funds, much through Cyprus. After whistle-blowing, he was arrested - died in custody in Nov/09 (age of 37). Russia chose to pursue posthumous case against Magnitsky for tax fraud. Trial starts March 22.
    Est: Russians had deposited more than $26B in Cypriot banks = more than island’s $23B GDP.


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