May 17, 2021

Cyprus and Europe Officials Agree on Outlines of a Bailout

The deal, struck after hours of meetings here, was approved by the finance ministers from the euro zone, the 17 countries that use the common currency. It would drastically prune the size of Cyprus’s oversize banking sector, bloated by billions of dollars from Russia and elsewhere in the former Soviet Union.

The deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders.

“We have a deal,” President Nicos Anastasiades was quoted as saying by Greek media. “It is in the interests of the Cypriot people and the European Union.”

The head of the finance ministers, Jeroen Dijsselbloem of the Netherlands, said the agreement could “be implemented without delay” without a new vote by the Cypriot Parliament, which had rejected a deal last week. Lawmakers on Friday passed legislation that set the framework for the new action, he said.

“This has indeed been an arduous week for Cyprus,” he said.

He did not have exact timing for when Cyprus’s banks, which have been closed for more than a week, would reopen. Cyprus would receive the first payment of the bailout package worth 10 billion euros, or $13 billion, in early May.

Under the agreement, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.

Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.

The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank. That short-term financing, which the E.C.B. had threatened to cut off on Monday, will most likely continue.

Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely.

Mr. Dijsselbloem said he was “convinced this is a much better deal” because under the revised agreement, the heaviest losses “will be concentrated where the problems are, in the large banks.”

These provisions should help reverse what, in recent days, has been Cyprus’s steady retreat into a surreal pre-modern economy dominated by cash.

Retailers, gas stations and supermarkets, gripped by uncertainty over whether Cyprus would really secure a 10 billion-euro financial lifeline, have increasingly refused to take credit cards and checks.

“It’s been cash-only here for three days,” said Ali Wissom, the manager at Il Forno di Jenny’s restaurant off Cyprus’s main square in Nicosia. “The banks have closed, we don’t really know if they will reopen, and all of our suppliers are demanding cash — even the beer company.”

With major banks in Cyprus shut for more than week, a trip to the cash machine became a daily ritual for anyone in need of money. The initial limit on withdrawals was 400 euros. It then fell to 260. As of Sunday night, it slipped to a meager 100 euros.

At the Centrum Hotel, Georgia Xenophontes, 23, an employee in the front office, said she drained her bank account at a cash machine last week — just in time to avoid being hit with the latest withdrawal limit.

“This is affecting everything in our lives,” she said. “Even though you don’t want to count on money, you need it. But we don’t have stability.”

In Brussels, the day was filled with confusion and rancor. Reports filtered out of heated confrontations between Mr. Anastasiades and European Union negotiators, and especially with the International Monetary Fund, which Mr. Anastasiades has accused of trying to push Cyprus up against a wall.

Mr. Anastasiades told officials including Christine Lagarde, head of the monetary fund, that accepting harsh terms might force him to step down.

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

This article has been revised to reflect the following correction:

Correction: March 25, 2013

An earlier version of this article referred imprecisely to the population of Cyprus. It should have said that the country, and not the island itself, has only 860,000 people.

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Cyprus Delays Vote on Bailout Plan

President Nicos Anastasiades was trying to compel policy makers in Brussels to soften demands for a tax to be assessed on Cypriot bank deposits, saying European Union leaders used “blackmail” to get him to agree to those conditions early Saturday in order to receive a bailout package worth 10 billion euros, or $13 billion.

Cyprus, whose banking system is verging on collapse, is now the fifth nation in the 17-member euro union to seek financial assistance since the crisis broke out three years ago.

As anger in this country swelled against the measure, Mr. Anastasiades delayed an emergency vote parliamentary vote on the bailout plan until Tuesday, the second step in as many days. Faced with a lack of support from lawmakers, the vote could be delayed until as late as Friday.

The government also said it would keep Cypriot banks shuttered until at least Friday, well beyond a bank holiday that was supposed to end Monday, a move aimed at staving off a possible bank run.

For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those with insured accounts — were being called on to bear part of the cost, €5.8 billion.

The previous bailouts have been financed by taxpayers, and the new direction raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take flight.

A crowd of protesters gathered in front of the presidential palace, shouting angrily at Mr. Anastasiades and inveighing against Germany and European leaders as he entered the building to meet with his cabinet. “Merkel, U stole our life savings,” read one banner tied to a bus stop. “EU, who is next, Spain or Italy?” read another.

The group of finance ministers from the 17 countries using the euro were on standby Monday for a possible conference call later in the day to assess the outcome of discussions among party leaders in Cyprus. Jeroen Dijsselbloem, the president of the group, had declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not being actively considered.

A key question for the finance ministers was expected to be whether any revised formula for the tax on deposits could still deliver the 5.8 billion euros agreed to in the bailout deal. The plan, a so-called bail-in, also includes junior bondholders in Cypriot banks, and that component of the deal still was expected to bring in about 1.4 billion euros.

Russia’s support of the plan was also essential because of the large amount of Russian funds held by Cypriot banks. But President Vladimir Putin on Monday described the bailout plan as “unfair, unprofessional and dangerous,” the Interfax news agency quoted a Kremlin spokesman, Dmitry Peskov, as saying.

Foreign deposits made up 26.8 billion euros in deposits out of a total of 64.8 billion as of December, 15.4 billion euros of which were deposits from Russians in Cyprus, according to the Regional Banking Association of Russia.

As financial markets absorbed the implications of the news, finger-pointing quickly ensued. In Berlin, the German finance minister, Wolfgang Schäuble, sought to deflect criticism for the damage to depositors, saying the “levy on deposits below 100,000 euros was not the creation of the German government,” according to Reuters. “If one reached another solution, we would not have the slightest problem.”

But Mr. Anastasiades denied that he refused the proposal to exempt deposits under 100,000 euros from the levy, according to the government spokesman, Christos Stylianides.

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Stocks and Bonds: Worry on Euro Debt Ends 3 Days of Gains

Raw materials companies helped depress the major indexes after prices for commodities like copper and oil plunged.

Traders focused on remarks by Chancellor Angela Merkel of Germany suggesting that the second bailout package for Greece might have to be renegotiated. Several European leaders want banks to take bigger losses on Greek bonds, but France and the European Central Bank oppose the idea.

Germany’s Parliament is set to vote Thursday on a measure that would give a European rescue fund more powers to fight the region’s debt crisis. Finland’s Parliament approved the proposal Wednesday, lifting some uncertainty over the crisis, which has dogged financial markets since late July.

“This is a market that has been fluctuating and is thoroughly susceptible to any news, any rumors, any innuendos” about Europe, said Quincy Krosby, a market strategist at Prudential Financial.

The Dow Jones industrial average fell 179.79 points, or 1.6 percent, to close at 11,010.90. It had gained 413 points over the last two days. The Standard Poor’s 500-stock index fell 24.32, or 2.1 percent, to 1,151.06. The Nasdaq composite index fell 55.25, or 2.2 percent, to 2,491.58.

Declines were broad. Only 17 of the 500 stocks in the S. P. 500 rose.

Raw materials stocks were down 4.5 percent. Investors fear that Europe’s problems could cause another global recession, weakening demand for basic materials like copper. The price of copper plunged 5.6 percent; crude oil fell 3.8 percent, to $81.21 a barrel..

The mining company Freeport-McMoRan Copper and Gold declined 7.2 percent, and Cliffs Natural Resources fell 8.4 percent. The coal producer Alpha Natural Resources was down 11 percent, the most of any company in the S. P.

Orders for durable goods slipped 0.1 percent last month. The modest decline was largely a result of an 8.5 percent drop in orders for automobiles and automobile parts.

Economists looked past the total figure and focused on a 1.1 percent increase in a crucial category that measures business investment plans. That is core capital goods that are not used for defense or transportation.

Shipments of those goods rose 2.8 percent, the fourth consecutive gain in the category. The government looks closely at shipment figures when calculating economic growth.

Economists said the fact that businesses kept expanding and modernizing during the turbulent month suggested many were confident about the future.

“Business capital spending is rising,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. “There is no recession.”

The Dow jumped 126 points minutes after the opening bell on that report. But those gains were gone within an hour, and the selling intensified in the last half-hour of trading.

The decline followed three days of gains. Stocks rose earlier this week on hopes that Europe was moving closer to resolving its debt problems. The Dow soared 272 points on Monday, its fourth-largest increase this year, and 147 points more on Tuesday.

“The market got ahead of itself,” said Joseph Saluzzi, co-head of stock trading at Themis Trading. Investors “assumed some kind of deal would be structured, and that was so far away from happening.”

Technology companies fared better than the overall market. The online retailer shot up 2.5 percent after it unveiled the Kindle Fire, a tablet device that will cost $199 and will compete with Apple’s hugely successful iPad.

Jabil Circuit, an electronics parts maker, rose 8.4 percent. The company reported strong earnings and a fourth-quarter earnings forecast that was better than analysts had expected.

The benchmark 10-year Treasury note fell 2/32 to 101 8/32, pushing its yield to 1.99 percent, down from 1.98 percent on Tuesday.

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Deal on Lifeline to Avert Greek Bankruptcy Is Postponed

After nearly seven hours of talks in Luxembourg, ministers announced a holding action that reflected their struggle over how to avert a potentially disastrous default by Greece. Athens needs the next payout of 12 billion euros from its existing 110 billion euro bailout package by mid-July in order to remain solvent.

The decision adds to pressure on the Greek government and its prime minister, George Papandreou, who on Sunday began urging Parliament to support his reform plans in a confidence vote scheduled for Tuesday night.

The ministers’ action fell short of expectations raised Thursday when Olli Rehn, the European commissioner for economic and monetary affairs, said in a statement that he was confident the leaders would reach agreement in Luxembourg to provide Greece the next installment of aid in early July.

Jean-Claude Juncker of Luxembourg, who leads the group of 17 euro zone finance ministers, said he expected the disbursal to be approved if deep spending cuts and new reform measures were enacted. “I cannot imagine for one second that we would commit to finance Greece without knowing that the Greek Parliament has given a vote of confidence to the Greek government,” he said.

Mr. Papandreou’s Socialist Party has been working to shore up its tenuous political position in the face of widespread anger in Greece over strict austerity measures that have produced job losses and cuts to wages and pensions. Late last week Mr. Papandreou shuffled his cabinet and appointed a Socialist stalwart, Evangelos Venizelos, as the new finance minister.

The ministers did fall into line with an agreement made on Friday between the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, over the extent to which private investors would be involved in a second bailout package, which Greece needs on top of its existing rescue package in order to meet its debt obligations through next year.

The ministers did agree that a second bailout would involve the private sector “in the form of informal and voluntary rollovers of existing Greek debt” — a solution deemed acceptable by the European Central Bank. Before backing down on Friday, Mrs. Merkel had initially pressed for debt swaps instead.

Asked about the mood of the talks, the Belgian finance minister, Didier Reynders, said “the atmosphere was good.”

“The problem was that we have to make progress on the role of the private sector, and we have made progress,” he said.

The discussion proved more complex than expected because the International Monetary Fund was insisting that the European Union effectively underwrite the Greek government if its financing plan did not add up over the next year, said one European official not authorized to speak publicly. Many governments resisted that effort because of the uncertainty in knowing how much of a financing gap there could be next year. It is also unclear what proportion of it could be covered by the private sector.

Devising a new bailout that would include voluntary private sector involvement, so it would not be classified as a default, will be complex, said one official not authorized to speak publicly, because the amount that the private sector agrees to contribute will largely determine how big a gap reluctant European governments will have to fill. Another big source will be Greece’s privatization program, intended to raise as much as 50 billion euros.

After a week of intense turmoil that ended with an overhaul of the ruling Socialist Party’s cabinet on Friday, Mr. Papandreou signaled on Sunday that he was prepared to make radical changes to the indebted Greek state system, and proposed an overhaul of the Constitution.

Declaring that the bloated government sector was largely to blame for the state of the Greek economy, Mr. Papandreou called for a referendum in the fall on a proposal to “change the political system” and revise the Constitution, which protects some 800,000 government workers.

Mr. Papandreou confirmed that talks were progressing between Greece and its foreign creditors for a second bailout package “approximately equal” to last year’s emergency loan package of 110 billion euros.

The stakes still remain high, with politicians aware of the risk of contagion.

“Nobody’s lending to the Greeks at the moment and that’s why we need to find a solution,” said Maria Fekter, Austria’s finance minister. “A default would be an ever bigger damage.”

All this comes a little more than a year after the international community offered the government in Athens its first package of 110 billion euros in loans to prevent it from having to borrow at crippling rates on the financial markets.

But Greece has since then failed to meet its economic goals because of a worse-than-expected recession, which has depressed revenues, as well as its own failure to install reforms.

Greece’s creditors have demanded that Mr. Papandreou secure a broad political consensus on a number of austerity measures — chiefly tax increases, cuts in public spending and privatization of state assets — that are to be voted on in Parliament by the end of this month.

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Stocks & Bonds: Hopes for Greek Bailout Help Most Shares Gain

Shares gained as Germany agreed under pressure from France not to force private investors to take on some of the burden of a new bailout package for Greece. The announcement in Berlin meant Germany was backing away from a sticking point with the European Central Bank on the issue.

The market pared its gains late in the day, however, after Moody’s Investors Service put Italy’s government bond ratings on review for possible downgrade. The rating agency cited growth challenges, a likely rise in interest rates and risks posed by changing funding conditions in Europe as among the reasons for the review.

At the close, the Dow Jones industrial average was 42.84 points, or 0.4 percent, higher at 12,004.36, while the Standard Poor’s 500-stock index was up 3.86 points, or 0.3 percent, to 1,271.50. The Dow rose 0.4 percent and the S. P. edged up just 0.04 percent for the week — the first weekly gains since April 29.

The Nasdaq composite index closed lower Friday, falling 7.22 points, or 0.3 percent, to 2,616.48, its fifth consecutive weekly loss.

The euro continued to be buffeted by European debt developments, reacting sharply on Friday to the announcement by Chancellor Angela Merkel of Germany about the Greek bailout.

“That is when the euro popped,” said Brian Dolan, the chief currency strategist for The European currency rose to $1.4306 in late New York trading from $1.4207 late in the day on Thursday.

Mr. Dolan said that the debt issue was likely to continue to weigh on the European currency, however. “You get a short-term rebound in the euro but the long-term issues are still there, and that is going to prevent the euro from a sustained recovery,” he said.

In European markets, the CAC-40 in Paris rose 31.43 points, or 0.8 percent, to 3,823.74. The DAX in Germany was up 53.85 points, or 0.8 percent, at 7,164.05, and the FTSE in London gained 16.13 points, or 0.3 percent, to 5,714.94.

Bruce McCain, chief investment strategist of Key Private Bank, said concerns about European debt and a slowdown in the United States economy had probably pushed United States stock prices down too far, too quickly. “We priced in a lot of negatives over a short time period,” he said. With investors having reduced their exposure to equities, he said, now the market “has the opportunity to rally a bit.”

In the bond market, Treasury issues slipped Friday after rallying on Thursday in response to European debt worries. The Treasury’s benchmark 10-year note yield fell 5/32, to 101 18/32, and the yield rose to 2.94 percent.

Analysts said that even if Europe can agree on the details of a rescue package for Greece, worries will persist about political stability in the country as well as a possible contagion effect on Ireland, Italy, Spain and Portugal.

“The problems in the euro zone don’t begin and end with Greece,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

In stock market trading on Friday, financials, consumer staples, utilities and telecommunications shares rose by more than 1 percent. Among the gainers, I.B.M. rose 1.8 percent to $164.44, JPMorgan Chase gained 1.1 percent to $40.80, ATT climbed 1.1 percent to $30.77 and Microsoft rose 1.1 percent to $24.26.

Among the day’s biggest decliners was Research in Motion, maker of the BlackBerry smartphone. The company, which has struggled to compete with Apple’s iPhone and Google Android phones, reduced its earnings outlook for the second time this year after the market close on Thursday. RIM shares plunged 21.45 percent Friday to $27.75.

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Political Divide Poses Risks for Portugal in Bailout Talks

Political leaders in Lisbon will begin the task of setting aside their domestic differences in order to negotiate acceptable bailout terms with international creditors.

The European Commission, meanwhile, received Portugal’s formal request for aid on Thursday. That should allow finance ministers meeting this weekend to give the go-ahead for Brussels negotiators to head for Lisbon.

Portugal’s Socialist prime minister, José Sócrates, bowed to market pressures on Wednesday night and requested a bailout from the European Commission, joining Greece and Ireland.

The rescue call, however, comes amid a leadership vacuum in Portugal that might not even be resolved by a general election on June 5. Mr. Sócrates resigned last month when center-right opposition lawmakers led by the Social Democratic Party rejected his austerity package.

Politicians from both sides are due to meet in the coming days to hammer out what kind of bailout package Portugal will request. One estimate by a European official put Portugal’s needs at about 75 billion euros ($106.5 billion), but some analysts have suggested that the amount could be as much as 110 billion euros. Last year, Greece secured a rescue package worth 110 billion euros and Ireland 85 billion euros.

But consensus among Portugal’s political leaders will not be easy. While opposition leaders agree that Portugal needs a bailout, policy makers in Lisbon know they will must get all sides to support the austerity measures that will be demanded by the international lenders.

To complicate matters, the negotiations are taking place in the midst of an election campaign that will probably be dominated by the question of who is to blame for Portugal’s predicament. The leader of the main Social Democratic opposition party, Pedro Passos Coelho, supported the decision to seek outside help, but he and Mr. Sócrates are blaming each other for forcing Portugal to seek a bailout in the first place.

“What the election campaign is now about is who should assume the responsibility for inviting international creditors into Portugal,” said Diogo Ortigão Ramos, a specialist on fiscal legislation at a law firm, Cuatrecasas, Gonçalves Pereira.

The cabinet minister in the caretaker government, Pedro Silva Pereira, told Reuters that the government could not yet comment on the size of aid, and the next steps will be defined by the European Commission.

The French finance minister, Christine Lagarde, said European ministers could start discussing conditions for a deal on Friday. “We need to get ready to reply to this request and examine the conditions to which the loan will be subject,” Ms. Lagarde told journalists, a day ahead of a finance meeting in Hungary.

“I am leaving for Budapest tonight and we will start discussing it tomorrow morning,” Ms. Lagarde said, according to Reuters.

If the pattern of previous bailouts is repeated, it could take several weeks for a team of Brussels and perhaps International Monetary Fund officials to discuss the conditions of a bailout with Lisbon, which will ultimately need to be approved by European finance ministers.

Mr. Pereira said Portugal’s caretaker government had asked President Anibal Cavaco Silva to talk to the opposition parties about the aid request. On Thursday, President Cavaco Silva called in a Facebook message for “responsible cooperation” on the part of the opposition parties to help negotiate an acceptable deal.

European officials in Brussels are hoping that all sides in Portugal can reach some agreement on a bailout package and avoid the political volatility that they saw with the last request for a rescue, in Ireland. Leaders in Dublin negotiated an assistance package before an election earlier this year. Now the new Irish government wants to re-open the terms to which its predecessor agreed.

“Everyone wants to avoid a repetition of Ireland,” said one European diplomat speaking on condition of anonymity due to the sensitivity of the subject.

However another diplomat said there were signs that Portuguese politicians had seen the danger and would compromise.

“When your house is on fire, you don’t argue about how to put it out, you call the fire brigade,” the official said.

The most recent opinion polls suggest that neither party will be able to secure a parliamentary majority in June.

Before any financial help can be put in place Portugal faces a rendezvous with the financial markets with a bond redemption of 4.2 billion euros on April 15. European Union finance ministers meeting in Hungary Friday and Saturday expect to hear from their Portuguese counterpart regarding how much of this amount has already been raised.

Some officials say Portugal might need to seek bilateral loans from other nations to tide it over, though others hope that the effect of Wednesday’s announcement will be to drive down the cost of short-term borrowing for Portugal.

Lisbon’s request for aid now puts pressure on Spain, which has undertaken major economic reforms, budget cuts and a banking clean-up to stay out of danger.

Spain, however, held a successful bond auction on Thursday, raising 4.1 billion euros at a yield that was little changed from three months ago. Separately, France also 9.49 billion euros of bonds on Thursday, drawing strong demand.

The Spanish sale “confirms that there are no signs of a contagion spreading to Spain at present,” said Chiara Cremonesi, fixed-income strategist at UniCredit In London. “Spain continues to be perceived by investors as part of the “safer” periphery countries group.”

Portugal’s rescue call came after it was forced on Wednesday to sell Treasury bills at a much higher cost than last month. That followed a series of downgrades by leading credit rating agencies, as well as a warning by the country’s leading banks that they would not buy more Portuguese sovereign debt.

The country could end up with a hung Parliament after the June vote, according to an opinion poll carried out by the Catholic University of Portugal and released Wednesday. Thirty-seven percent of respondents said they would vote for the Social Democrats while 7 percent support its conservative ally, the Popular Party. The Socialists, meanwhile, would win 33 percent of the vote, with other left-wing parties securing the outstanding share of the votes, the poll found.

Raphael Minder reported from Lisbon and Stephen Castle from Brussels.

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