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 180.

    119 JoellyPoelly - interesting insight, thank you. I just feel huge sympathy for ordinary Cypriots and hope something can be worked out that doesn't penalise hard-working families for mistakes made by institutions over which they have no control.

  • rate this

    Comment number 179.

    Germany will sell Cyprus to the Russians. There is a lot of Russian money tied up in Cyprus on clubs, bars , restaurants, hotels etc.

  • rate this

    Comment number 178.

    172. TheTakeleySocialist
    Karl Marx:
    Never ran a company.
    Never held political office.
    Never held a job - any job.
    Was supported out his life by his friend Friedrich Engles, the son of a wealthy factory owner.

    Considered by a few as the greatest social, political & economic philosopher of all time.

    All applications of his theory have failed.

    Tell me more about how Karl was right all along :D

  • rate this

    Comment number 177.

    #173 dmt

    "It's a great system.

    For Germany."

    Tell that to Germans -- and run !

    --Read the German Blogs and you may understand how nonsensical

    your statements are !

    --Their living standard has dropped ca 30% since 1989.

    -- " There´s Revolution in the air "

    --If Merkel falls at the next election --expect changes -- and even longer dole lines --all over Europe !

  • rate this

    Comment number 176.


    40% of german industry is automated.They can put there robots anywhere.
    And believe me Germany is rather happy when at a offshore banking centre like cyprus island
    the banks are CLOSED.Maybe some multimillionaire will reconcider moving cash to cayman island etc.

  • rate this

    Comment number 175.

    They need about 15 Billion Pounds ! Divided by about 1 Million people = £15,000 for every man womman and child -

    Lets say 50% of the population work

    = £30K per worker ! This figure is to recapatalise only - Kicking the debt can down the road for another few years...

    This saga, and others, will eventually have to end

  • rate this

    Comment number 174.

    172. TheTakeleySocialist
    Capitalism rewards merit & punishes loss. It does not allow for near free money to be gifted to businessmen who invest recklessly at no risk, with private gains & any losses guaranteed by the state - via coercive theft of wages.

    But hey, I'm sure Karl Marx would definitely be happy about socialising the misery of private losses amongst the general public eh :P

  • rate this

    Comment number 173.

    We agree, then. German economic policy is fantastic for Germany.

    You must have missed the bit about their partners.

    You may also have missed the bit about the Euro. To fill you in, it is a mutual currency that massively lowers German production costs whilst massively inflating the costs for their poorer partners, rendering their exports defunct.

    It's a great system.

    For Germany.

  • rate this

    Comment number 172.

    For all the childsih EU semantics courtesy of the Tory /UKIP Factoid pushers..It really only comes down to one person who has been proven right all along, and that's Karl Marx.
    It's Capitalism that's desperatley trying to save itself no matter how you try to dress it all up as something else.

  • rate this

    Comment number 171.


    Having your savings seized is "Sensible" economic policy?

    I think it's time you stopped relying on stereotypes and based your opinions on something more concrete-- like reality.

  • rate this

    Comment number 170.

    Can someone explain why issuing sovereign bonds is not an increase in national debt ?

    -- especially when you borrow the collateral and claim it is yours ?

    --The EU is being ´Greeked´ again !

  • rate this

    Comment number 169.

    The following is an alternative German view, I strongly suggest people read the paragraph headed
    "The transfer union from South to North"
    which starts with "..the phrase “transfer union from Germany to the periphery”, often used by German critics in the euro crisis, does not have any substance despite a continuing bail-out facade"

  • rate this

    Comment number 168.

    Perhaps that's the real deal. The Italian mafias get Italy, Germany, the Netherlands; the Russians get UK, Spain, Greece and the periphery. Something for us all to look foward to.

  • rate this

    Comment number 167.

    #163 Atomic

    "3-When things get really bad you will take all the blame and take our medicine like a good boy"

    "The management of the Children’s Hospital in Pendeli, northeastern Athens, has ordered a disciplinary investigation into the operation of a forgery racket issuing fake documents certifying dyslexia."

  • rate this

    Comment number 166.

    @ 150.democracythreat
    "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."

    Yes I agree,……… and a jolly good thing too. Sensible economic policies, sound banking, and living within our means. I am all for it.

  • rate this

    Comment number 165.

    It's good to see that the decisions made in Germany have been ratified by Europe makes it plain to see who is in charge. The whole of Europe will have peoblems resulting from this as Germany sorry Europe have sent a clear message to the rest of Europe and banks are also being cleared out of funds in Italy, Spain, Greece etc. I will be getting my Russian phrase book ready looks the safest option.

  • rate this

    Comment number 164.

    139. Trout
    Such people might need help themselves one day. That's the point of "society"; that's the point of "insurance".
    No. Insurance is a private contract you take out to cover yourself for an unfortunate mishap.

    A free society should be about enjoying personal responsibility & accountability for personal choices.

    Car insurance should be voluntary; as holiday, phone or house insurance is.

  • rate this

    Comment number 163.

    The EU/EZ way:
    1- Little countries, we will let you join our exclusive euro club
    2- Then we will watch you get in trouble, do absolutely nothing and instead sing the EU praises
    3- When things get really bad you will take all the blame and take our medicine like a good boy
    4- And there is nothing you can do about it since we have already tied a cement block to your feet called the euro (see step 1)

  • rate this

    Comment number 162.

    158. powermeerkat
    "True. Russian mafia invested in Spain as well, so its interests there must be protected too."
    Who do you think invests in our banks?
    "Britain's biggest bank HSBC, shamed for laundering drug gangs' millions, Barclays riggs LIBOR.

  • rate this

    Comment number 161.

    #138 PTR

    "because of some corrupted politicians and call for the whole country to get kicked out of EU!"

    -- How many millions of Greek citizens have I covered --over 2.5 million and increasing ?

    --I have done my homework --and justify my views and conclusions with facts -- mostly from Greek news media and visiting Greece, Cyprus, (North and South), Turkey.

    --why don´t you --before writing ?


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