March 28, 2024

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.

Article source: http://www.nytimes.com/2013/03/25/business/global/cyprus-and-europe-officials-agree-on-outlines-of-a-bailout.html?partner=rss&emc=rss

Egypt Needs Structural Help From I.M.F., Not Loans, Minister Says

CAIRO — Egypt needs broad structural measures, not stopgap financing, as part of a package from the International Monetary Fund to address its budget deficit, a cabinet member said Sunday.

“The help we are requesting from the I.M.F. is not quick fixes,” the cabinet member, Ashraf al-Araby, the minister for planning and international cooperation, said at a news conference.

With President Mohamed Morsi struggling to contain violent protests, new figures released Sunday showed a jump in inflation, which will hurt the poor hardest and is likely to stir yet more social unrest.

Cairo says it wants to reopen talks with the I.M.F. on a $4.8 billion loan that was put on hold during rioting last December.

The fund has yet to respond publicly to the invitation.

Some analysts have said that the fund seems reluctant to negotiate on a full deal during the current political upheaval and that it might offer short-term financing that would be modest in size but without many of the conditions demanding painful reforms that would come with a full program.

“It is not suggested that we obtain a bridging loan,” Mr. Araby said. “This is offered by the I.M.F. in its negotiations with many countries. In our case, we do not need bridging loans.”

Mr. Araby did not say explicitly whether the fund had offered Egypt such short-term financing.

Last month, Mr. Morsi called for elections between April and June, but a court later canceled his decree, throwing the electoral process into limbo.

Cairo’s problems are daunting. Foreign currency reserves have fallen to about a third of their levels before the 2011 revolution, forcing the central bank to ration dollars.

This is crippling many smaller and midsize firms, which often turn to the black market because banks make them wait months to get currency at the official rate.

On top of that, the government’s budget deficit is climbing to unaffordable levels and the Egyptian pound is sliding.

Article source: http://www.nytimes.com/2013/03/11/business/global/11iht-imf11.html?partner=rss&emc=rss

Stocks & Bonds: Shares Suffer Again in a Blow to Market Confidence

After the rebound in the markets a day earlier when the Federal Reserve promised to keep interest rates near zero for two years, investors appeared to pay closer attention to the Fed’s grim assessment of the prospects for the economic recovery and jobs growth.

Investors fled any form of risk and poured into safe-haven investments like Treasury securities and gold, resuming the trend of the last few weeks. Confidence was shaken in the financial health of some of Europe’s banks and what their problems might mean for banks in the United States. Bank stocks led the sell-off in the United States, shedding nearly 7 percent.

Most European markets have entered bear territory, dropping more than 20 percent from recent highs, and the S. P. 500-stock index is not far behind, lopping off 18 percent since its recent April 29 peak.

Meanwhile, signs of stress are emerging in the short-term financing markets in Europe, where banks borrow billions of dollars everyday from one another and other lenders to finance loans and investments. 

Although borrowing costs for banks in the United States and Britain have  risen modestly, those for European banks that lend dollars to one another have doubled in the last 10 days to their highest level in the last two years. Still, borrowing costs are roughly one-fourth of where they were during the peak of the financial crisis.

On Wednesday, concerns about Europe’s debt crisis swirled across trading floors in New York. For yet another day, the stock market swung back and forth with ranges of hundreds of points. Stocks tried a late afternoon rally, only to plunge anew toward the close.

They finished steeply lower on Wednesday as each of the three main indexes dropped more than 4 percent, generally wiping out the gains of the previous day.

The last time there were three consecutive days of 4 percent moves in the S. P. was in October 2007.

The Standard Poor’s 500-stock index lost 4.4 percent to close at 1,120.76. The Dow Jones industrial average ended down 519.83 points, or 4.6 percent, at 10,719.94.

Few are risking a prediction that the market has hit a bottom. It will take a strong dose of rosy economic reports to start to pull stocks up. But instead of being buoyed by positive sentiments, investors are increasingly worried that governments in the United States and in Europe are unable to solve economic problems that may now be getting out of hand.

The fear is that policy makers have few weapons left to reignite growth now that United States interest rates have been pushed close to zero and any fiscal stimulus appears to be off the table in Washington.

“The market psychology is such that investors no longer seem to know who or what to root for, and all that they do know is, according to the Fed, that rates will remain low until the middle of 2013,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

As Europe’s debt crisis has spread into nations at the heart of the euro zone like Italy and France, it has added a new level of anxiety to markets. There are concerns that France could be overwhelmed if it is called upon to participate in any support for heavily indebted nations like Spain or Italy, and also bail out some of its own banks that hold large amounts of government debt from those shaky countries.

Some French bank stocks fell sharply after there were signs of some stress in bank funding rates in Europe.

Borrowing costs for European banks that lend to one another have doubled to 60 basis points since the end of July, although that is still well below the nearly 200-basis-point level hit at the height of the financial crisis.

Nevertheless, banks were the hardest hit sector in the United States stock market over fears of how vulnerable they are to the troubles in Europe.

Article source: http://feeds.nytimes.com/click.phdo?i=348a68f6672d77c3bda1255f9cfa5ce5