The Parliament put off until later this weekend a vote on a crucial new proposal that would confiscate 22 to 25 percent of uninsured deposits above 100,000 euros through a new tax on account holders in one of the nation’s most troubled banks.
So with a deadline imposed by the European Central Bank looming on Monday, it appeared there was still no immediate path to a lifeline of 10 billion euros, or $13 billion, that Cyprus needs to keep its banks from collapsing.
Cyprus’s so-called troika of lenders — the International Monetary Fund, the European Commission and the European Central Bank — must still approve any plan. President Nicos Anastasiades was scheduled to fly to Brussels on Saturday to meet with European Union leaders, a spokesman said.
Monday is a national holiday in Cyprus, but banks are supposed to reopen on Tuesday for the first time in more than a week. There is widespread fear of a classic bank run.
On Friday, Cypriots jammed into supermarkets after lining up all day Thursday at automated teller machines to withdraw as much cash as possible. Gas stations were taking cash only, and some retailers reported that they would no longer accept credit.
One of the provisions Parliament approved Friday would impose new restrictions on withdrawing cash or moving money out of the country when the banks reopen. These new capital controls would prohibit or restrict check-cashing and bar “premature” account closings or any other transaction the authorities deemed unwarranted.
Lawmakers also voted to restructure the nation’s largest and most troubled bank, Laiki Bank, by splitting off its troubled assets into a so-called bad bank. Accounts with no problem would be transferred to the nation’s largest financial institution, the Bank of Cyprus. Lawmakers also voted to require that any bank on the verge of bankruptcy be split apart in the same way.
By effectively shutting down one of the banks needing support, the government could lower the 5.8-billion-euro sum that international lenders are demanding in exchange for a bailout. The consolidation of Laiki, also known as Cyprus Popular Bank, effectively relieves the government of a large expense of supporting the banking system, which is on the verge of collapsing under a mountain of souring loans to Greek businesses and individuals.
Still to be voted on is the measure to impose a tax of 22 to 25 percent on uninsured deposits at the Bank of Cyprus. That proposal was made after lawmakers rejected a plan earlier in the week to tax insured deposits to help raise the amount needed to secure the bailout. The Parliament appears to be trying to make up the difference in part by shifting the burden to large account holders.
When euro zone finance ministers negotiated the original bailout terms last weekend, Cypriot officials had resisted limiting the tax to large accounts, evidently to avoid damaging the country’s reputation as a haven for wealthy banking clients. Many of the wealthiest citizens of Russia have euro-denominated bank accounts in Cyprus, which is one reason that euro zone finance ministers have taken such a hard line.
The decision to tax uninsured deposits came after Cyprus proposed nationalizing the pension funds of state-owned Cypriot companies.
Lawmakers approved the pension takeover on Friday, but the move was denounced in Germany, whose political and financial influence in the euro zone tends to dictate policy.
“When you consider that there was massive resistance against involving the savings, then it is not easy to see how tapping the pension funds, which we view as socially a much more drastic step, is a very good idea,” Steffen Seibert, a spokesman for the German chancellor, Angela Merkel, told reporters.
The suggestion of tapping pension funds touches off a visceral response in Germany, where history has proved the dangers of such ideas. German pensions were tapped to finance both world wars, and the idea remains anathema to German leaders today.
Contributing reporting were Melissa Eddy in Berlin, James Kanter in Brussels, David M. Herszenhorn in Moscow, Niki Kitsantonis in Athens and Andreas Riris in Nicosia.
Article source: http://www.nytimes.com/2013/03/23/business/global/cyprus-bailout-vote.html?partner=rss&emc=rss
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