Cyprus says 'significant progress' in debt crisis talks

Cypriot parliament voting, 22 March 2013

Cyprus has made "significant progress" in talks with the EU and IMF aimed at securing a bailout, Cypriot Finance Minister Michael Sarris has said.

Mr Sarris was also quoted as saying Cyprus was considering a 25% levy on deposits of more than 100,000 euros (£85,000) in its biggest bank.

Cyprus has to raise 5.8bn euros (£4.9bn; $7.5bn) before Monday to secure a 10bn-euro loan.

Parliament has approved restructuring the island's banks, among other moves.

But it rejected a levy earlier this week, before EU pressure brought the proposal back to the table. The rejected proposal included a levy on smaller deposits.

On Saturday afternoon more than 1,000 bank employees marched to the Cypriot finance ministry, stopping briefly at the presidential palace on the way.

Marchers held placards with slogans such as "No to the bankruptcy of Cyprus" and chanted "United we cannot be defeated".

The BBC's Sean Klein at the demonstration says the mood is angry but peaceful as they head on towards parliament.

'Further work'

Mr Sarris was speaking after talks with the "troika" of the EU, the European Central Bank and the International Monetary Fund.

"Significant progress has been made toward an agreement at least with the troika which will report to the Eurogroup," he said.

"Two or three issues need further work."

He said experts were now discussing these issues, and the talks would resume later on Saturday afternoon with the aim of finalising the package.

Cypriot President Nicos Anastasiades and party leaders were considering a trip to Brussels depending on the outcome of the meeting.

The Eurogroup, of 17 eurozone finance ministers, will meet to discuss the Cyprus bailout at 18:00 local time (17:00 GMT) on Sunday, its president Jeroen Dijsselbloem tweeted.

The European Central Bank has given Cyprus until Monday to raise the bailout money.

If Cyprus fails, the ECB said it would cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.

Analysis

The eurozone is really turning the screw on Cyprus, and it's being led by Germany.

The message is crystal clear - your economic model has to change. They will no longer accept the idea of a national economy within the eurozone that is dependent on its reputation as an offshore tax haven.

There is huge irritation with the way the Cypriots have handled things, and that has led to the imposition of deadlines which mean big decisions need to be taken very quickly.

The cost of cleaning up the Cypriot banking system must be borne by investors in the Cypriot banking system - like it or lump it.

Cyprus now needs to find out what money-raising measures the EU will accept before putting them to a vote, says the BBC's Chris Morris in Nicosia.

He says Germany is essentially writing the rules for the eurozone, and the message coming from Brussels and Berlin is that the money has to come from the banking sector and investors who have benefited from high interest rates over recent years.

Germany has voiced opposition to another measure approved by the Cypriot parliament on Friday - nationalising some pensions to pay into a solidarity fund along with other assets.

Germany has also made it clear that it will no longer accept an economy within the eurozone that is dominated by its status as an economic tax haven, our correspondent adds.

Leading Cypriot bankers have urged parliament to accept a levy, with small savers exempted.

Russian money

On Tuesday, parliament overwhelmingly rejected a levy that would have made small savers pay 6.75%, while larger investors would have paid 9.9%.

The proposal had provoked widespread anger among both ordinary savers and large-scale foreign investors, many of them Russian.

German press commentary

  • Frankfurter Allgemeine Zeitung: "The irritation of the Europeans, who want to use taxpayers' money to help the Cypriots get back on their feet, is justified since, unlike a small debtor whose bank account overdraft has been cancelled, Nicosia still seems to believe that it does not have to fear the worst because creditors from London to Moscow and the EU partners would never allow the worst to happen."
  • Die Welt: "Dismay in Europe: What Cyprus is selling as a 'plan B' would neither reduce state debt nor encourage important economic reforms. German politicians simply call it 'cheek'."

The government fears a levy would prompt foreign investors to withdraw their money, destroying one of the island's biggest industries.

Mr Sarris travelled to Moscow this week to seek Russian support for alternative funding methods, but Russia said it would only act after the EU reached a deal with Cyprus.

Among nine bills approved on Friday, Cyprus MPs voted to restructure the banking sector, starting with the second-largest and most troubled lender, Laiki (Popular) Bank.

Under the restructuring, troubled lenders will be split into so-called good and bad banks, protecting smaller deposits but allowing levies on bigger ones.

There is now speculation that the biggest lender, the Bank of Cyprus, will also be restructured.

Parliament also voted for capital controls to prevent large withdrawals from Cyprus.

Banks in Cyprus have been closed since Monday and many businesses are only taking payment in cash.

Anthanasios Orphanides, former governor of the Cyprus Central Bank, told the BBC that Cyprus was a victim of German domestic political pressures ahead of a general election there later this year.

German Chancellor Angela Merkel and her party needed to avoid being accused of using "German taxpayers' money to pay off Russian oligarchs".

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