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
    +4

    Comment number 260.

    its time to get rid of the euro its never worked and never will ok for those fat cat euro mps though theyll sit there all day and talk a load of rubbish for what their getting paid

  • rate this
    -2

    Comment number 259.

    When Euro collapses and the EU economy with it, since there is no plan to prevent total chaos, Europe should do what others in similar circumstances have done in the past, Cuba for example. It would do well to adopt the US dollar as its currency. It's something the whole world can count on. The US can increase and decrease the money supply at will although it will be geared towards US interests.

  • rate this
    +5

    Comment number 258.

    MH @255

    I rather think that it's much more likely that UKIP will win a seat here especially if the main 3 parties continue with denying us a referendum on the EU. As for Alex seeing as he wants an independent Scotland to adopt the euro I think a lot of Scots will have 2nd thoughts about independence - being a rather 'thrifty' lot I can't see them taking kindly to indescriminate bank levies

  • rate this
    +5

    Comment number 257.

    So the Euro catastrophy continues. The whole idea was preposterous without dictatorship from Brussels as to the fiscal situation in all Euro using countries. The EU is a failure and is totally against democracy, the present EU President is not elected is he??? and neither is the comission. Time for the UK to use the £60 milliona day to pay off the Labour debt.

  • rate this
    +3

    Comment number 256.

    AH the bigoted Margaret Howard is back the woman who talks more nonsense than the entire Cabinet put together, must be related to that man of the night

  • rate this
    -11

    Comment number 255.

    248 EU


    "Hopefully the very sensible programme of the new German anti-Euro party, "Alternative for Germany" will move us all towards the abolition of the Euro"


    About as likely as UKIP winning a seat here
    (but I have more hope for Alex Salmond:)

  • rate this
    +5

    Comment number 254.

    The Euro .. doomed from the start
    Only surprise is its taken ten years or so to find out ..
    Still think it was a good idea to join, Mr 'know it all ' Tony Blair ?

  • rate this
    +4

    Comment number 253.

    Why are the media not asking this question : "How much will UK banks loose if the banks in Cyprus go bust?"

    Come on investigative journalists - find out.

  • rate this
    -3

    Comment number 252.

    234.democracythreat
    Well as much as you wish the Euro will stay also as currency for Germany.Anything else is fairy tale.And also the countries who use the
    Euro will increase even Monaco is using it

  • rate this
    -4

    Comment number 251.

    243 demo

    "this is a clear statement of ethnic bigotry, offered as the basis for European financial policy.Is it acceptable policy to discard a whole people in this way? Again?"

    Isn't that what you have indulged in (and in language far worse) in regards to Germany in just about every one of your comments here? And Europe as a whole didn't fare much better.

  • rate this
    +1

    Comment number 250.

    http://www.youtube.com/watch?v=FONN-0uoTHI

    Margaret, why are you all waving lumps of timber? :)

  • rate this
    +1

    Comment number 249.

    235.Danaos
    RE:moral high ground belongs to Europe

    ". only Greece, Ireland etc."
    You simply wear being weak and insignificant as a badge of honour here.
    Witnessing Greece as a culture over the past 50 years, I shudder to think of the consequences of it having been anything other than weak and insignificant with regards to true international power & there's not much moral high ground in that

  • rate this
    +5

    Comment number 248.

    Hopefully the very sensible programme of the new German anti-Euro party, "Alternative for Germany" will move us all towards the abolition of the Euro.

  • rate this
    +2

    Comment number 247.

    235. Danaos.

    So the Serbs did not brutalise Srebrenica, Sarajevo as just two examples. Ethnic cleansing on a grand scale. You are, of course, from exactly the same mould as those running Russia so no surprise in you speaking up for your corrupt and evil brothers in arms.

  • rate this
    0

    Comment number 246.

    @146

    That would be the EU embargo that the UK and France recently announced we'd break too, if we felt like it? If we're not taking it seriously, why should Cyprus?

  • rate this
    -3

    Comment number 245.

    231 purple

    "Hi margaret, l hope you are well"

    Yes, thanks.

    I live in the wealthiest farming area in the UK and you can't move for 4x4s.

    However, prior to EU membership they were chucking tons of pesticides on the land with the result that nearly all insects, not just bees, have disappeared.

    Set aside made a difference but money is the only thing that will produce change

  • rate this
    +2

    Comment number 244.

  • rate this
    -1

    Comment number 243.

    GH writes: "Berlin says it cannot ask its taxpayers to bail out Cyprus if that involves protecting wealthy Russians."

    Whether or not you agree with this sentiment, and whether or not such a sentiment is based in fact or prejudice, this is a clear statement of ethnic bigotry, offered as the basis for European financial policy.

    Is it acceptable policy to discard a whole people in this way? Again?

  • rate this
    +4

    Comment number 242.

    230.margaret howard

    "These days the moral high ground belongs to Europe"

    She means the "EU"

    So the moral high ground belongs to an organisation that supported the imposition of the Lisbon Treaty on the British people who had been promised a referendum but denied one when 82% wanted it and 70% wanted to vote NO!

    !
    ?
    !

  • rate this
    +3

    Comment number 241.

    I sincerely hope that this debacle opens the eyes of all the europhiles to the shameful, despicable and immoral way that the EU politicians and technocrats think they can treat the ordinary people throughout Europe.

    Bring on our referendum and the sooner the better

 

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