News Column

Cyprus Struggles to Avert Financial Meltdown

March 22, 2013

Cyprus was racing against the clock Friday to find a way out of its financial crisis and meet the terms of an international bailout by next week or risk bankruptcy.

The small EU island-nation was struggling to raise billions of euros by a Monday deadline to qualify for a European and International Monetary Fund rescue package for its bloated and ailing banking sector.

But its desperate leaders, who have scrambled all week for a solution, face growing EU impatience, anger in Germany, and a rejection of immediate help from Russia.

Worried Cypriots, meanwhile, again queued at cash machines to get out their money, while angry protesters noisily heaped pressure on politicians holed up in parliament.

The crisis in Cyprus, a tiny EU member, has reignited fears about the wider 17-member eurozone.

The Mediterranean nation relies on a large financial sector that is favoured by foreign millionaires as a tax shelter and, critics charge, to launder ill-gotten money.

As the eurozone debt crisis has battered its banks, Cyprus has needed a large bailout from the European Commission, the European Central Bank and the IMF.

But the so-called troika of lenders - including the largest EU economy, Germany, which is in an election year - are loathe to use taxpayers' money to rescue Russian tycoons.

They have demanded that Nicosia, in order to qualify for a 10-billion-euro rescue loan, raise an additional 5.8 billion euros by itself - spelling tough choices for Cyprus.

Its parliament at the start of the week rejected a plan under which it would have effectively seized up to 10 per cent of bank customers' deposits, an unprecedented step.

While that measure was rejected, and banks have stayed closed until next week to prevent a bank run, the measure damaged the confidence of savers and investors.

The ECB has given Cyprus until Monday to come up with a new plan, warning that it will otherwise stop providing funding to its banks, which would spell financial disaster.

As a Plan B, the government has mentioned a so-called investment solidarity fund, to be fuelled with gas revenues, money from pension funds, and bonds and securities.

Restructuring the country's second largest bank, Laiki, which has been exposed to bad Greek debt, could raise an estimated 3.6 billion euros, the central bank has said.

Cyprus also asked Moscow for help, for example to invest in its offshore gas sector or its banks. However, Russia declared that negotiations had ended without result early Friday.

Prime Minister Dmitry Medvedev later clarified that Moscow had "not shut the doors" on Cyprus but would consider helping only after Nicosia had finalized its EU-IMF bailout.

Almost a third of the estimated 70 billion euros in deposits in Cyprus banks are believed to be held by Russians.

Meanwhile, German Chancellor Angela Merkel voiced frustration with Cyprus, saying it was testing the troika's patience and had failed to communicate with it all week.

Merkel told a meeting of her conservative Christian Democrats that she rejected a proposal to dip into Cypriot pension funds, and said "I don't want to see a crash."

She reportedly said that, loosely translated, Cyprus was preferring to die proudly than living on its knees.

European Commission President Jose Manuel Barroso, on a Moscow visit, said Brussels was still waiting for a new proposal and warned "I believe there is no time to lose."

Cypriot Government spokesman Christos Stylianides, meanwhile, insisted that the country was in the final stages of reaching a viable solution.

"Parliament will soon convene to make the difficult decisions," he said. "The next few hours will determine the future of the country."

Conservative lawmaker Prodromos Prodromou said the government was again considering a levy on bank deposits, telling Cypriot TV that "it will affect large cash deposits."

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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