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
    0

    Comment number 440.

    Why can't the 'raid' on bank accounts be an indefinite interest-free (at least initially) loan to the government, to be paid back when affordable? That way, depositors would still own the money even if it is not accessible.

  • rate this
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    Comment number 439.

    Cyprus Mail (8.48pm)

    "Cypriot leaders are discussing with their international lenders the adoption of a levy of more than 10 percent on bank deposits over 100,000 euros, a ruling party official said on Friday, as the island scrambles to clinch a European Union bailout."

    --up to 16 % says ´Spiegel´

    -- foreigners overboard !

  • rate this
    0

    Comment number 438.

    No 'temporary fix' 436 - just a continuation of normal business. No more tax evaders or money launderers in the RoC than in other EU countries. In fact far less, and with less capital involved.Yes the Suits at the EU ECB and IMF are stupid. They have no real knowledge of the island, its people or its economy. Their demands are unbelievably stupid and will damage the rest of the EU.

  • rate this
    0

    Comment number 437.

    It would be sufficient if 10 Greeks (with big Enosis mouths) --would adopt one Cypriot.

    "Alexis Tsipras, leader of the major opposition party Coalition of the Radical Left (SYRIZA) blistered Samaras for not coming out to support Cyprus, "

    --but that may cost Greeks money ?

  • rate this
    0

    Comment number 436.

    435" ATMs ARE working; Credit and Debit cards CAN still be used."

    That's a temporary fix.The real economy, the unsavory banking system is dead.Tax evaders and money launderers will find other safer places to commit their crimes. They won't risk Cyprus again. EU/ECB is playing a dangerous game. How do they know there won't be contagion?

  • rate this
    0

    Comment number 435.

    The overwhelming feeling in Cyprus is that EU ministers, the ECB & IMF are behaving like arrogant stupid schoolyard bullies. Because, in size and in terms of its GDP, Cyprus is viewed by them as the 'Runt of the EU Litter' does not justify treating it like a football. ATMs ARE working; Credit and Debit cards CAN still be used. The demonstrations are where the TV cameras are, warning YOU ARE NEXT!

  • rate this
    0

    Comment number 434.

    The social fabric of Cyprus may be about to break down. When the cash economy grinds to a halt what will Cypriots do? Will they riot in the streets? Will police try to stop them? When the economy collapses and there's no more food on the shelves, no utilities, even no hospitals what will the EU do, just let them rot? How can the EU be so sure there won't be contagion, that others won't revolt too?

  • rate this
    0

    Comment number 433.

    431 You're right IMO there will/would be a run on Cypriot banks.Keeping them closed is even worse.Will a court order them to open eventually?Then you can be sure of a run.But what about other banks in the EU? One day they close, you learn they're in trouble, and you don't know if or when you'll ever have access to any of your deposit money again? Wouldn't that be the instant death of Europe?

  • rate this
    0

    Comment number 432.

    429.David Gussie
    Rule HOW ? Germany and EU was asked.If someone on the street ask you for 10£ for his PIGGYBANK
    and you respond well put 6£ in first and he says NO.To you rule this person? I dont think so you just
    move one with clear conscience as the 10 £ are his problem the 6£ as well.

  • rate this
    0

    Comment number 431.

    alas what ever happens I do not think the Cyprus banks will ever reopen because if they do there will be a run on then that will make Northern Rock seem like a raid on a piggy bank.

  • rate this
    0

    Comment number 430.

    IMO if West Germans had it to do again they would not be blackmailed into joining the Euro to reunify Germany.They lost on both accounts.All they really want is their money back.They aren't likely to get it.Those who borrowed it have no hope of ever earning enough.

    427"How did every man, woman and child incur Euros 8,956 of debt?"

    Simple, on average they spent that much more than taxes paid

  • rate this
    -2

    Comment number 429.

    It seems as if Germany is again trying to rule over Europe. This time they are doing it via the banks, and the EU. Germany alone thinks that it is the pedestal of the European Union, and the economic ruler of Europe. Again, and again Germany wants to bully the weaker nations, and appease the stronger nations in Europe. The EU is not a union. The EU are just economies controlled by Berlin.

  • rate this
    +1

    Comment number 428.

    408.quietoaktree

    Thanks for the link. If the Germans could run that gauntlet then this here thing should be a cakewalk.

  • rate this
    0

    Comment number 427.

    Euros 8,956. How did every man, woman and child incur Euros 8,956 of debt?

  • rate this
    0

    Comment number 426.

    Angela Merckel put herself in a no-win circumstance.Against much German opposition she placed a bet committing a great deal of German money to save the Euro.If this ploy fails, Cyprus goes under, and contagion spreads she'll look like a blithering idiot having thrown all the rest away to save only 7 billion.If it doesn't go under, every other bank in Europe will still be seen as a serious risk.

  • rate this
    0

    Comment number 425.

    424 Markets respond to psychology. One element is confidence, a sense of safety, security of one's assets, or lack of it. Will investors feel their money is secure in Euros and Euro denominated assets? The ECB's message to Cyprus is a strong message to the world that it is not secure.If Cyprus today, who next tomorrow or the day after? Greece? Spain? Italy? France? Why should anyone feel safe?

  • rate this
    0

    Comment number 424.

    423.sieuarlu

    A country like Cyprus will be certainly not a threat to the € and you mentioned yourself the proportion.
    7 billion v 950 billion of € in circulation.It s not even 1% not to say that some of the money within
    Cyprus belongs to Russia and well earned Petro $. Not to speak that debt and QE in EZ is lower when US.

  • rate this
    0

    Comment number 423.

    420 Europe shuffled its unpayable debt between banks, governments, and the ECB to save the Euro like a three armed juggler. They committed to do anything and everything to defend the Euro.Yet here it is under threat.Do they see it as a threat?Ceratinly their willingness to tax depositor accounts in EU banks in trouble leaves no doubt.And all for only 7 bn when they've already risked so much more

  • rate this
    0

    Comment number 422.

    #419 sieuarlu

    --overdrawn your US credit card ?

    at least in the EU you would get fed --even criminals.

    http://www.ehow.com/about_6724810_international-travel-restrictions-convicted-felons.html

    " hundreds of thousands ..released from U.S. prisons after felony drug convictions discover ... They are permanently denied the life-sustaining benefits of food stamps and other public assistance.

  • rate this
    0

    Comment number 421.

    So you banned my last comment from me about the debt situation in Britain, Germany, Ireland, & the World. And yet regards Britain, Richard Starkey & Andrew Neil could discuss same on This Week, in much the same way as I wrote my comment. Why didn't you ban them?

    Also, the other day when I praised God's creation re; your article, The first fractions of a second after the Big Bang. Shame on you!

 

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