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 160.


    Well simple for the reason that Germany is not involved in the problem.
    The issue is MONEY for cypriot banks who need a BAILOUT.

  • rate this

    Comment number 159.

    Cypriot banks:
    *Operate on a Fractional Reserve Banking model.
    *Have less than 10% of Depositors's cash in their vaults.
    *Are given government license to invest recklessly via deposit guarantees & possible bailout packages.
    *Are exposed to overly indebted countries like Greece, Italy, UK, Spain, USA and Japan.
    UK banks share the same characteristics.
    Think you're safe here? Think again.

  • rate this

    Comment number 158.

    'Russia's PM said "If it can be done in Cyprus, why not Spain..."

    True. Russian mafia has invested billions in Spain as well, so its interests there must be protected too.


    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"
    Because many of those thieves are in the government?

  • rate this

    Comment number 157.

    There are vast foreign deposits (mainly Russian) in Cyprus than, proportionally, in almost any other country.
    Also Cyprus has discovered offshore Gas.
    EU officials are now in Moscow discussing ‘the matter’ and Greece is ready to purchase the Cyprus bank branches there at a knock down price (ironic after Cyprus purchased 4 billion euros of Greek near-junk bonds).
    The vultures are now circling.

  • rate this

    Comment number 156.

    @ 147.gro8os
    ……….."Even if that means putting hundreds of thousands into misery."

    Germany is not responsible for "putting hundreds of thousands into misery"; the Cypriots have done that themselves. The truth is that Germany is very loath to risk large sums of its own taxpayer's money to help Cyprus dig themselves out of the hole they have dug. A not unreasonable point of view IMHO.

  • rate this

    Comment number 155.


    Whatever-I can see there is a long history of you here slagging off Greece on a number of posts on different subjects for some time now!Very impressive!
    Clearly there is a personal issue as on every excuse you will find you will accuse Greeks. Perhaps you should get a life instead and stop being a hater!

  • rate this

    Comment number 154.

    QAOT: "They are already allowing Russia to use Cyprus as a base to transfer weapons to Assad in Syria and this is against the EU mandate."

    Earlier one of Putin's spies outed in US managed to escape back to Russia guessed it... Greek Cyprus.

  • rate this

    Comment number 153.

    #138 PTR

    "This however gives you no right to generalise and call millions of average hard working Greeks thieves, liars and cheats "

    " more than 400,000 Greeks had declared illegal homes, almost 80,000 of which have now been approved. "


  • rate this

    Comment number 152.

    People are seeing how the EU operates, there is no democracy, it's time to get out!

  • rate this

    Comment number 151.

    Make running your bank/country into the ground a capital offence, execute the bankers as traitors (which they are) and the problem won't happen in the future. Now where's Fred the Shred

  • rate this

    Comment number 150.

    If we accept that the EU is no longer about "ever closer union", then what is it about?

    It seems to be about adherence to German economic policy.

    Without the charade of serving the common good, how will the Germans sell the Euro to their other partners?

    "Yeah, it's great for everyone. It's win win. All our partners do fantastically well. Latvia, Greece, Cyprus, you name it. Every one a winner!"

  • Comment number 149.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 148.

    Dream scenario:
    Cyprus tells the EU to take a hike, and emulates Iceland. Let the banks fail, let the markets liquidate the debt so that a sound banking system can take root.

    144. Phffft
    Point taken. Patrick Henry, Samuel Adams, Washington, Paine, Jefferson, Franklin, Hamilton et al - and I disagree with you, strongly.
    But it's a topic for another day :)

  • rate this

    Comment number 147.

    "Angela Merkel also believes the banking sector is too large and also unsustainable."

    Why should anyone care about what the Germans believe? All they care about is their own interests - even though they play the Euro-Samaritans along the way. Mrs Merkel in specific, will do whatever it takes to get her a re-election. Even if that means putting hundreds of thousands into misery.

  • rate this

    Comment number 146.

    #133 omnishambles

    -- ´shambles´ appears appropriate.

    "Why doesn't Cyprus politely tell the EU (especially Germany) where to go with their diktats and become an off-shore independent country with strong financial ties to Russia?"

    They are already allowing Russia to use Cyprus as a base to transfer weapons to Assad in Syria and this is against the EU mandate.

  • rate this

    Comment number 145.

    If the Cyprus banks fold the dominoes will surely start to topple.
    Who is going to blink first? My guess is the EU, they are spinelss. They will not let a Euro currency member fold over.
    Get ready for a can to be kicked down the road.

  • Comment number 144.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 143.

    There are a lot of spurious allusions to Russian military interest in Cyprus. Don't be fooled.

    Russian's want to be rich russians, pretty much, and that means they want Europe to use more gas. It suits Russia, and russians, if the EU were to be well managed, economically and politically.

    Russia has nothing to do with the current crisis, except as it's nationals are investors. Getting fleeced.

  • rate this

    Comment number 142.

    Under our grotesque Fractional Reserve System, ALL banks are inherently insolvent & inherently speculative.
    This needs to be said over and over again, because 90% of people have NO IDEA what Fractional Reserve Banking is. If people actually knew that most of the money in a bank didn't exist, things would be entirely different! Educate yourselves and know why this is all failing!

  • rate this

    Comment number 141.

    Two developments today:
    1. The ECB gives Cyprus an ultimatum: it must accept the bailout!
    2. Russia's PM said "If it can be done in Cyprus, why not Spain, Italy, or other countries problem finances? Tomorrow they may start to confiscate deposits there. There is reason to think".

    1 + 2 = Countries may dump their vast reserves of the unstable €, replacing it with some £s - strengthening our £!


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