December 11, 2018

E.C.B. Hardens Deadline for Cyprus Bailout Deal

Meanwhile, the mood turned sour on the streets of Nicosia, the Cypriot capital, where people flocked to cash machines Thursday morning to withdraw as much money as possible after the government declared that banks would remain closed until next Tuesday to give officials time to renegotiate the bailout deal.

Cyprus’s president is due to present international lenders with a revised plan later Thursday with the goal of raising enough money to satisfy creditors while also passing muster with Parliament. Cypriot lawmakers voted down a bailout proposal on Tuesday containing a controversial tax on bank deposits that had been negotiated with Cyprus’s European Union partners over the weekend.

The European Central Bank gave Cyprus until Monday to reach an agreement with the European Union and the International Monetary Fund if it wanted to continue to receive the low-interest loans that are essential to keeping its banks afloat.

From that point onward, the E.C.B. said it would only consider a fresh influx of emergency funding, as requested by Cyprus, “if an E.U./I.M.F. program is in place that would ensure the solvency of the concerned banks.”

Cypriot banks, which have been closed since Saturday, will remain closed through a national holiday Monday, the government announced late Wednesday, hoping to avoid a bank run while the bailout is being renegotiated.

But at branches of Laiki Bank and the Bank of Cyprus in downtown Nicosia, where lines had virtually disappeared over the last three days, there was an air of exasperation, anger and anxiety Thursday morning as people hoped that funds would still be on hand by the time it was their turn to make a withdrawal. Only one of two cash machines at each bank branch was working.

“Time is up — we want our cash,” said Maria Melitou, an accountant.

“Our friends in Europe brought us to this point,” she added. “We expected more.”

Irena Margilou, 32, the 13th person in an 18-person line at Laiki Bank’s cash machine, spoke in an embittered voice. “We don’t know what the future holds,” she said.

She questioned what she said was German insistence that the Cypriot government skim money from people’s bank accounts to secure a €10 billion, or $13 billion, bailout. “It’s like you’re telling us to just leave our money in our mattress,” she said. “What is happening to European solidarity?”

After the Cypriot Parliament on Tuesday rejected a plan to impose a one-time tax on bank deposits of 6.75 percent for accounts under €100,000 and 9.9 percent for amounts above that, the government on Thursday was planning to propose nationalizing pension funds from state-run companies and conducting an emergency bond sale to help raise the €5.8 billion the indebted country needs to secure the bailout.

The proposals are meant to sharply reduce the amount of money that would be raised by the tax on bank deposits, which was a condition of the original bailout deal negotiated with Cyprus’s three international lenders — the E.C.B., the I.M.F. and the European Commission, known collectively as the troika.

But even the revised plan contains a bank tax that, while much smaller than originally proposed, might still not be palatable to Parliament.

Under the new plan, all Cypriot bank deposits of up to €100,000 would be hit by an immediate one-time tax of 2 percent. Deposits above that threshold would be subject to a 5 percent levy.

The fallback was being cobbled together as Cyprus’s finance minister pressed his case in Moscow on Wednesday in hopes of securing additional aid from Russia, many of whose wealthiest citizens have big deposits in Cypriot banks.

Representatives of the troika were in Nicosia on Thursday but were not certain to sign off on Cyprus’s latest plan.

Cypriot banks have frozen all accounts in a financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.

The authorities have ordered Cypriot banks to keep automated bank machines filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies who do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.

Melissa Eddy contributed reporting from Berlin.

Article source: http://www.nytimes.com/2013/03/22/business/global/ecb-hardens-deadline-for-cyprus-bailout-deal.html?partner=rss&emc=rss

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