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
    +1

    Comment number 280.

    Anytime you have a banking sector which is bloated relative to the country’s total GDP, like banks in Iceland and Cyprus (Cyprus needs a bank rescue equal to 57.1% of its entire national economic GDP), and if that banking sector runs into problems, you have a recipe for disaster. Cyprus did it to itself. Ignore the drama.

  • rate this
    +1

    Comment number 279.

    276. Movetoslovenia ~ surely, the point is that Greece, like Germany, doesn't want to leave the euro. Cyprus is a different kettle of kippers because two thirds the population don't mind if they do.

    This is either attempt to kick Cyprus out in disgrace, or incomotance of breath taking scale. If a vote is held now, Cyprus is out of the euro.

  • rate this
    +4

    Comment number 278.

    276.Movetoslovenia
    Rompuy, Baruso Lagarde are just a load of stupid clowns
    --
    Outrageous.

    You forgot lying, bullying, unelected, undemocratic, self-interested, power-hungry, despotic, moronic, torpid and hopelessly blinkered.

  • rate this
    +3

    Comment number 277.

    @274
    Also, EU people are not "subjects of his majesty".

    As such. Not explicitly. They don't write it in your passport, is what I mean.

    If I had to be a serf, I'd totally want to be a serf in a german province. They're so much nicer about the whole feudal relationship.

    They'd have good drinking songs, and I could practice knowing my place in the grand scheme. Like, because, "or else". right?

  • rate this
    +4

    Comment number 276.

    RE post 265, that is a good question, where has the money gone. All we know is a lot of it went on the haircut of Greek banks. This is exactly the point Farage is making it is pointless poor nations bailing out other poor nations, it just kicks the can down the road. Greece should have just been told to leave the euro.

    Rompuy, Baruso Lagarde are just a load of stupid clowns

  • rate this
    +1

    Comment number 275.

    MH @274

    You are grasping at straws now

  • rate this
    -6

    Comment number 274.

    257 snodders

    "the present EU President is not elected is he???"

    No, he is the head of state. But unlike our own head of Queen his sons or daughters cannot inherit the title.

  • rate this
    +5

    Comment number 273.

    A German news print blog had a comment that I thought was pretty interesting. I'm not saying it represents every German, but it was widely agreed with on the blog. It was:

    "Darum lieber ein Ende mit Schrecken, als ein Schrecken ohne Ende."

    Better to have a terrible end, than terror without end.

    Germany is out, for sure. Wait until someone tells France! Then the fun really starts!

  • rate this
    +2

    Comment number 272.

    With all I've read on the Eurozone crisis all the solutions come back to Berlin. The need to issue Eurobonds, make the ECB the lender of last resort and ultimately start putting together a central EZ government in Brussels. That's if you believe the Euro was a good idea in the first place... which I do not.

  • rate this
    +2

    Comment number 271.

    The Troika and EU have drawn a line in the sand. They are waffling a moral position to dominate a free democratic nation which their prior policies and lax economics brought to bankruptcy in the name of their large banks and stupid lending. Greece cooked the books to join, the accounts were not properly audited. Cyprus was amongst the strongest EU economies.

    http://euobserver.com/opinion/119494

  • rate this
    +5

    Comment number 270.

    268 purple

    The way the EUrocrats blindly thrust forward, never stopping to look right or left, or consider the carnage they leave behind them, fills me with real fear. The 'little' people of 5 countries have had to endure turmoil just to save the Euro. How much more do we have to take before our politicians do the decent thing and get us out?

  • rate this
    0

    Comment number 269.

    @265 It went to Germany. They are the irresponsible ones in the EU/EZ as they won't come out with the truth that they either want out or to have only their pals in it. Collecting all their gold, charging massive interest rates on loans they pretend are gifts to their people, trying to ruin others banks so people deposit in theirs, not allowing a proper ECB.

  • rate this
    +1

    Comment number 268.

    263 further ~ Suggested scope of policies would implicate virtually all national legislation - including competitiveness, employment laws, reforms that cover product and services, tax systems and network industries.

    Draft legislation this year.

    Financial stability and fiscal sustainability are suggested benchmarks for whether legislation should be discussed in Brussels before implemention,

  • rate this
    +3

    Comment number 267.

    Sieuarlu @259

    You are obviously an American. Why on earth would any country want to adopt the $ when it too has constantly been devalued by your politicians?

  • rate this
    0

    Comment number 266.

    Germany wants a united Europe of its like-'thinking' pals (those who will do as they are told), and wants to get rid of having to handle diversity. It wants everyone to be the same sausages (Times), yet looks at individual differences to find weak points in those it wants to discard. It conveniently ignores its own weak points (debt, illegal deposits, bribery, etc).

  • rate this
    +5

    Comment number 265.

    One question nobody wants to answer ,wher the F@#$% all that money had gone amd why should I pay for someone's irresponsibility.

  • rate this
    +2

    Comment number 264.

    @251
    If my sincere desire to be free of German cultural and legal hegemony under an undemocratic regime constitutes bigotry, then I may console myself that I am good company. I note you don't actually disagree that German policy is, once more, driven by ethnic contempt.
    @252
    Keep speaking at me with that same certainty. It is the voice that told me about ever closure union, until about a week ago.

  • rate this
    +1

    Comment number 263.

    As soon as you give Germans control of your economy, you are finished.

    BRUSSELS - The European Commission has started preparing the ground for legislation that would prevent member states from undertaking major tax, labour or financial reforms without running it by the commission and other governments first.

    I point out that german self beliefs are not righteous or god given.

  • rate this
    -4

    Comment number 262.

    254 parranger

    "Still think it was a good idea to join, Mr 'know it all ' Tony Blair ?"

    He tried but was too busy involving us in the disastrous Iraq/Afghanistan debacle which cost the lives of so many people

    His mistakes pale into insignificance and the debts his party left us with were far worse than joining the euro would have cost us seeing we are now more bankrupt than most.

  • rate this
    +2

    Comment number 261.

    Wake up time is here. Let's all stop finding excuses to support Germany.

 

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