Cyprus and European Officials Scramble to End Bank Crisis

The Cypriot president, Nicos Anastasiades, flew up from Nicosia earlier in the day with a proposal for raising the 5.8 billion euros, or $7.5 billion, that his country is supposed to contribute in order to receive 10 billion euros from the International Monetary Fund and euro zone countries.

After the Cypriot Parliament rejected the original deal, with a one-time tax on all deposits in Cyprus banks, Mr. Anastasiades came back Sunday with revamped terms under which a stiffer tax would be levied, but only on deposits above 100,000 euros, as a way to protect smaller account holders.

Lenders like the I.M.F. and the European Central Bank, also represented at the Brussels meetings, support a deal in which Cypriots impose a substantial tax on wealthier depositors, many of whom are Russians.

 Cyprus faces a deadline of Monday, when in the absence of a bailout deal the E.C.B. has said it will cut off the financing that is keeping Cyprus’s teetering banks from collapsing.

Arriving at the meeting, Wolfgang Schäuble, the German finance minister, was blunt in his assessment of what the Cypriots would need to do to reach a deal after the previous deal, hammered out eight days earlier, fell through. 

“The numbers have not changed. If anything, they have worsened,” said Mr. Schäuble, who was apparently referring to plummeting confidence in the Cypriot banking system as the bailout talks have dragged on and as banks in Cyprus have remained closed for more than a week.“I hope we will achieve a result today,” Mr. Schäuble said. “But that, of course, depends on the people in Cyprus having a somewhat realistic view of the situation.”

Pierre Moscovici, the French finance minister, took a more conciliatory tone, emphasizing the need for a “fair” deal for Cyprus and the need for lenders to make a “shared effort” to help Cyprus.

“The outlines of a solution exist, but the devil is often in the details,” Mr. Moscovici told reporters before the meeting of the finance ministers from the 17 countries in the euro zone. 

Earlier Sunday, Mr. Anastasiades met with the top officials of the so-called troika of organizations that would supervise a bailout: Mario Draghi, the president of the E.C.B.; Christine Lagarde, the managing director of the I.M.F.; and José Manuel Barroso, the president of the European Commission. Jeroen Dijsselbloem, president of the group of finance ministers, also participated. 

Because their meeting ran longer than planned, the session of finance ministers was delayed well past its scheduled starting time of 6 p.m. local time.

Before leaving Nicosia, Mr. Anastasiades briefed Cypriot political leaders on the outlines of his proposal, which was said to call for imposing a one-time tax of 20 percent on amounts above 100,000 euros in deposits at the Bank of Cyprus.

Because the Bank of Cyprus, which has the largest number of savings accounts on the island, suffered huge losses on bets it took on Greek bonds, the government appears inclined to make that bank’s wealthy depositors bear the biggest burden.

The 20 percent tax would also hit those with large accounts at Laiki Bank. Parliament voted Friday to fold its accounts into the Bank of Cyprus, effectively closing down Laiki. A demand by international lenders to make the Bank of Cyprus absorb some of the liabilities associated with Laiki was one sticking point in the talks Sunday night.

A smaller tax, of 4 percent, would be assessed on deposits exceeding 100,000 euros at all other banks, including the 26 foreign banks that operate in Cyprus.

Whether any deal reached in Brussels would be approved by the Cypriot Parliament, whose signoff is needed, remained uncertain.

The late negotiations are the culmination of months of wrangling over how to address the financial troubles of the tiny island nation, which has a population of about 1 million.

James Kanter reported from Brussels and Liz Alderman from Nicosia, Cyprus.

Article source: http://www.nytimes.com/2013/03/25/business/global/cyprus-and-european-officials-scrambles-to-end-bank-crisis.html?partner=rss&emc=rss