May 20, 2019

President of Cyprus Criticizes Bank Chief

President Nicos Anastasiades did not say what the central bank governor, Panicos O. Demetriades, had done to draw his ire. But he suggested that Mr. Demetriades’s actions had led to the resignations on Friday of three central bank board members.

Mr. Demetriades, an appointee of the previous left-wing administration, told the Cypriot newspaper Phileleftheros that his cooperation with the government and Parliament was a given in order to deal with the country’s severe financial crisis, but that the central bank’s independence must be respected.

Lawmakers have criticized Mr. Demetriades over his role in talks with the country’s euro zone partners and the International Monetary Fund, which culminated in a 23 billion euro ($30 billion) rescue package.

The terms of the bailout require Cyprus to raise 13 billion euros of the overall amount by imposing losses on deposits over 100,000 euros in the country’s two largest banks, Bank of Cyprus and Laiki.

Laiki experienced heavier losses from bad Greek debt and loans than the larger Bank of Cyprus. Laiki will be broken up in to a “good” bank that will be folded into Bank of Cyprus and a “bad” bank that will be wound down.

As part of its bank restructuring, and to prevent a run on its banks, Cypriot authorities have imposed a series of capital controls — the first that any country has applied in the euro zone’s 14-year history — including a daily 300 euro limit on withdrawals.

Officials said the restrictions would be lifted gradually until trust in banks is restored. On Sunday, the authorities raised the monthly domestic bank-to-bank transfer limit for individuals to 50,000 euros from 10,000 euros. For businesses, the transfer limit rose to 300,000 euros from 50,000 euros, but documents justifying the transfer must be presented.

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Cyprus Chief of Finance Quits Post

President Nicos Anastasiades accepted the decision by Mr. Sarris to step down, and the government quickly appointed Harris Georgiades, the deputy finance minister, as his replacement.

On the heels of Cyprus’s 10 billion euro, or $13 billion, bailout announced last week, a political blame game has broken open in the halls of power. Mr. Sarris has faced strong criticism for his handling of the crisis and had been under pressure from some factions in the Cypriot Parliament to step down.

He is also one of several people now facing an investigation by Cypriot officials over his role in the country’s banking crisis. Before taking the helm as finance minister in the government that came to power in February, Mr. Sarris was chairman of the board of Laiki Bank, which effectively collapsed last week. Laiki is being merged into the Bank of Cyprus in a deal under which depositors will lose up to 60 percent of their savings in excess of 100,000 euros.

Under his watch, a stint of eight months through August 2012 in which he tried to salvage Laiki, the bank suffered steep losses, mostly on a mountain of soured loans to Greek and Cypriot businesses and individuals. Cypriot banks also took a hit from their heavy holdings of Greek government bonds, which incurred big losses in the international bailout of Greece.

On Tuesday, some of the curbs Cyprus imposed on removing money from banks were softened. The restrictions had particularly hurt businesses that were not permitted to make large payments on debts they owed in the past two weeks.

The Finance Ministry lifted the ceiling on transactions between accounts and other banks to 25,000 euros from 5,000 euros. Other restrictions remain in place, including 300 euro daily withdrawal limits.

Mr. Anastasiades on Tuesday appointed a three-judge panel to look into how and why Cyprus edged close to a financial disaster that threatened to make it the first country to exit the euro. In a speech, he said the crisis arose from inept actions and omissions by people in charge of the banking sector and the economy.

Mr. Sarris had been at the front lines of the bailout negotiations, which led to one abortive deal more than two weeks ago in Brussels, followed by the final agreement early last week.

The most contentious decision in the first deal, which the Parliament rejected, would have imposed a 6.75 percent tax on bank deposits of less than 100,000 euros. Before it was abandoned, the plan was roundly criticized by economists in Europe and elsewhere as threatening the integrity of the deposit insurance system throughout the 17-country euro zone.

It was agreed to by Mr. Anastasiades in consultation with Mr. Sarris, who presented the deal to the Cypriot public in a televised news conference from Brussels on March 16.

After the Cypriot Parliament roundly rejected that plan, Mr. Sarris flew to Moscow to seek alternative sources of funding for Cyprus and its teetering banks. Those talks went nowhere.

“Mr. Sarris’s credibility was at near zero both nationally and with foreign lenders after he supported the first failed plan to tax depositors and then returned empty-handed from Moscow,” said Mujtaba Rahman, a senior analyst at the Eurasia Group.

The main provisions of the bailout deal will remain in place, including the breakup of Laiki Bank and the overhaul of the Bank of Cyprus.

But the Cypriot Parliament must still vote on a memorandum of understanding with the so-called troika of international organizations — the European Central Bank, the European Commission and the International Monetary Fund — that agreed to the bailout.

That memorandum, still being drafted, will outline the budget cuts and other conditions Cyprus will have to meet to receive its allotments of money. A parliamentary vote is expected in coming weeks. The governments of Germany and Finland, under their national rules on bailout loans, are also expected to seek the approval of their Parliaments.

The memorandum will probably be the subject of heated debate in Nicosia. Many lawmakers, already unhappy with the tough capital controls that have been slapped on bank accounts for the better part of a month, are dismayed by what they see as harsh terms that will tip Cyprus’s already enfeebled economy over the edge.

But Mr. Sarris’s resignation should “help the Cypriot government win approval for the bailout program in the Cypriot Parliament,” said Mr. Rahman, the analyst.

Michael Olympios, chairman of the Cyprus Investor Association, is among the many critics of the bailout deal because it wiped out the shareholders of Bank of Cyprus and will impose losses of up to 60 percent on depositors with more than 100,000 euros in their accounts.

“The troika is pushing us from recession to depression,” Mr. Olympios said, adding that the country may yet need to leave the euro zone. “It doesn’t matter if Mr. Sarris leaves and someone new comes in. If you don’t change the policies that are being imposed on us, then forget it.”

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Calm Prevails as Cypriot Banks Open Doors in Greece

Customers descended on the Cypriot banks in Greece on Wednesday, when branches opened their doors for the first time in 12 days. But it was nothing like the rush to liquidate that some experts had feared.

By 8 a.m., lines had formed at many of the more than 300 Greek branches that were owned by Cypriot banks until Tuesday. But they were not much longer than those usually seen after a long weekend.

While some jittery depositors said they had withdrawn the bulk of their savings, others appeared unruffled, saying they were just going about their usual banking business.

As well they might. Piraeus Bank, one of the largest Greek financial institutions, this week took over the local branches of the Cypriot lenders Bank of Cyprus, Hellenic Bank and Laiki Bank, also known as Cyprus Popular Bank. As a result, the deposits in those branches, which total about €15 billion, or $19 billion, roughly 10 percent of the total savings in Greece, will not be subject to any of the losses or capital controls that will hit some bank deposits in Cyprus.

Even so, the Cypriot debacle has rattled some savers enough for them to want their money back, regardless of who now owns their banks. Outside the main branch of Bank of Cyprus in central Athens, Panagiotis, a 40-year-old salesman who has been unemployed for three years, and who did not want to give his last name, said he had just withdrawn €1,000, the bulk of his savings.

“I left €20 so they don’t close the account,” he said, adding that he planned to stash the money in a bookcase at his home. “I don’t trust banks anymore.”

For Alexandra Kordou, a 54-year-old cleaner, the protracted bank freeze was compounded by a personal crisis. After her mother died of a stroke last Friday, Ms. Kordou was forced to borrow money from relatives because she had no A.T.M. card.

“We didn’t have the money to bury her,” she said, explaining that her €6,000 cash withdrawal on Wednesday would go toward loans and “other necessities.”

“I left €300 in the bank,” she said. “But I think I’ll need it soon.”

Bank staff said there were no restrictions Wednesday on cash withdrawals — in contrast to Cyprus where the authorities plan to put capital controls in place Thursday when branches reopen there, an effort to avert a bank run.

A senior employee at the headquarters of Bank of Cyprus in Athens denied reports that some customers had been denied access to their safe deposit boxes.

“This is a normal business day — busy but normal,” he said. “People are cashing their pensions, paying their bills and, yes, making withdrawals.”

A few blocks away, at a branch of Laiki Bank, a 79-year-old pensioner said he had transferred all his money to the largest lender, National Bank of Greece, a few days before Cypriot banks closed on March 15.

“I had a hunch things would go belly up, and I took it all out,” said the man, a retired print worker, who requested anonymity. “It’s all a huge mess, the Germans made sure of that,” he said, referring to Berlin’s tough stance on austerity measures for Greece and Cyprus. “National Bank is my best bet, I think, for now.”

Outside the same branch, a smartly dressed Cypriot woman who would not give her name said she had flown in to Athens from Nicosia for a couple of days “on business.” Asked whether she had withdrawn cash, she was defensive. “Of course not, there’s no reason to panic.”

Another Laiki customer, Dimitris Alevizopoulos, 32, said he was not worried as the deal with Piraeus stipulated that savings in Greece would not be subject to the losses that will be imposed on deposit balances of more than €100,000 in Cypriot banks.

“I don’t have €100,000, so I’m not worried,” the accountant said, then smiled ruefully.

A retired employee of the state telecommunications company, 60-year-old Christos Palaiologos, struck a similar tone. “I told the bank clerk I wanted to withdraw €130,000 just to see her reaction,” he said, after having paid off his credit card debts at the main branch of the Bank of Cyprus.

‘Seriously though, I’m calm,” he said. “It’s the rich that should be worried, for a change.”

One younger bank customer also displayed calm.

“I think they’ve taken enough precautions and Greek banks will be okay,” said Archontia Kaminari, a 27-year-old biologist at a research institute who had just deposited a check from her employer. But she does not plan to keep her money in Greece for long.

“I’m looking for work abroad, maybe in the Netherlands or in America,” she said. “Definitely not Germany.”

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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.

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