Cyprus weighs big bank levy; bailout goes down to the wire

People queue up to make a transaction at an ATM outside a branch of Bank of Cyprus in Nicosia  Credit: Reuters
People queue up to make a transaction at an ATM outside a branch of Bank of Cyprus in Nicosia
Credit: Reuters

Cyprus said on Saturday it would tax big savers at its largest bank in a dramatic U-turn as it raced to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse.

The island’s finance minister, Michael Sarris, reported “significant progress” in talks with international lenders, with the clock running down to and end-Monday deadline for Cyprus to clinch a bailout deal with the EU or lose emergency funding for its stricken banks and risk tumbling out of the euro zone.

His counterparts in Europe’s 17-nation currency union scheduled talks in Brussels for Sunday evening to see if the numbers add up, taking the crisis down to the wire.

President Nicos Anastasiades, barely a month in the job and wrestling with Cyprus’s worst crisis since a 1974 invasion by Turkish forces split the island in two, was due to lead a delegation to Brussels, also on Sunday, to meet heads of the EU, the European Central Bank and International Monetary Fund, in a sign a deal might be near.

“Hopefully by tomorrow in Brussels we will have the agreement of our partners,” Averof Neophytou, deputy leader of the ruling Democratic Rally party, told reporters.

Government officials held talks through the day at the finance ministry with Cyprus’s ‘troika’ of lenders – the EU, ECB and IMF. Angry demonstrators outside chanted “resign, resign!”

Its outsized banking sector crippled by exposure to crisis-hit Greece, Cyprus needs to raise 5.8 billion euros in exchange for a 10 billion euro EU lifeline to keep the country’s economy afloat.

But in a stunning vote on Tuesday, Cyprus’s 56-seat parliament rejected a levy on depositors, big and small, as “bank robbery”, and Finance Minister Sarris spent three fruitless days in Moscow trying to win help from Russia, whose citizens have billions of euros at stake in Cypriot banks.

Rebuffed by the Kremlin, Sarris said on Saturday talks with the troika were centered on a possibly levy of around 25 percent on savings over and above 100,000 euros at failing No. 1 lender Bank of Cyprus.

In a sign of how fluid the situation remains, however, a senior ruling party lawmaker said other options were on the table, including a “voluntary haircut” that would not require parliamentary approval or an 11-percent levy on big deposits at Bank of Cyprus that would.

Arriving at the troika talks, Andreas Artemi, chairman of Bank of Cyprus, was asked if a 25 percent haircut was being considered on uninsured deposits. He replied: “I don’t know that yet.”

It was far from certain that a majority of lawmakers would back a revised levy.

Ordinary Cypriots were outraged by the original proposal, and have been besieging cash machines ever since bank doors were closed last weekend on the orders of the government to avert a massive flight of capital.

RESISTANCE

Racing to placate its European partners, Cypriot lawmakers voted in late-night session on Friday to nationalize state pensions and split failing lenders into good and bad banks – a measure likely to be applied to No.2 lender Cyprus Popular Bank, also known as Laiki.

They also gave the government powers to impose capital controls, anticipating a run on banks when they reopen on Tuesday.

The plan to nationalize semi-state pension funds has met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a deposit levy.

“In our view, the pension fund cannot be made part of the rescue plan,” Volker Kauder, parliamentary leader for German Chancellor Angela Merkel’s Christian Democrats, told the Berliner Zeitung am Sonntag.

The bank restructuring has also angered Cypriots. On Saturday, around 1,500 bank workers marched on the presidency, holding banners that read, “No to the bankruptcy of Cyprus” and “Hands of workers’ welfare funds”.

OFFSHORE HAVEN

The pace of the unfolding drama has stunned Cypriots, who in February elected Anastasiades on a mandate to secure a bailout and save banks whose capital was wiped out by investments in Greece, the epicenter of the euro zone debt crisis.

Then news of the levy on bank deposits broke, an unprecedented step in Europe’s handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.

Cypriots leaders had initially tried to spread the pain between big holdings and smaller depositors, fearing the damage it would inflict on the country as an offshore financial haven for wealthy foreigners, many of them Russians and Britons.

The tottering banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros – enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.

But panicked by the visceral reaction of ordinary Cypriots, support from lawmakers fell away and they rejected the levy as “bank robbery”.

Under the latest proposal, Russians are unlikely to be hit hardest by the mooted 25 percent tax, given that just five percent of deposits at Bank of Cyprus come from Russia, according to the bank’s latest results statement.

The board of the Central Bank of Cyprus was likely to hold its first meeting on Sunday in almost a fortnight, a source with direct knowledge of the meeting told Reuters, in another sign a deal may be close.

Asked about the new plan for a possible 25 percent levy, Finnish Prime Minister Jyrki Katainen, whose country is allied with Germany in taking a hard line on Europe’s debt-laden southern flank, replied in English:

“If it was like this, I think it might be quite suitable because it means that the highest deposits will be taxed.”



News
Entertainment
Sports
Lifestyle
Local

Drive charged in fatal hit and run, police…

The NYPD has arrested a man they say is responsible for a fatal hit and run in Manhattan last weekend. Doohee Cho, 33, was hit…

Local

Mayor de Blasio raises minimum wage for some…

Mayor Bill de Blasio signed an executive order Tuesday morning that will raise the minimum wage for workers employed by private companies that receive more…

National

3 myths about the working poor

Linda Tirado works to debunk some common stereotypes about the working poor in her new book, "Hand to Mouth."

Money

Lawsuit funding advances: friend or foe?

Reporter was commissioned to write this in-depth article Many plaintiffs awaiting resolution of their lawsuit or legal claim often find themselves in a tricky financial…

Going Out

Which NYC restaurant lost its three-star Michelin rating?

A record 73 restaurants in New York City collected coveted Michelin stars on Tuesday as a mix of trendy spots and fine-dining stalwarts underscored the…

Entertainment

Interview: Metro chats with filmmaker Meir Kalmanson, man…

A New York filmmaker hands out smiles to its residents.

Television

TV watch list, Tuesday, Sept. 30: 'Selfie,' 'Utopia'…

'Selfie' This modern day take on the "My Fair Lady" story stars John Cho in the Henry Higgins role. Perhaps instead of "the rain in…

Music

Can't-miss weekend events continue to attract the masses

Reporter was commissioned to write this in-depth article Earlier this summer, the Firefly Music Festival drew crowds of tens of thousands of people to Dover, Delaware.…

MLB

Mets 2014 report card

The Mets wrapped up their eight straight season without a playoff appearance last weekend. Needless to say, they fell a bit short of general manager…

NFL

NFL Power Rankings: Cowboys, Packers, Ravens, Chargers climb

NFL Power Rankings: Cowboys, Packers, Ravens, Chargers climb

NFL

Ryan Quigley making a big impact for Jets…

Ryan Quigley, now in his second year as the Jets punter, had an exceptional afternoon with six punts for an average of 51.7 yards per punt.

NFL

3 positives to take from Jets loss to…

The Jets suffered another loss Sunday — 24-17 to the Lions — but the reason why it hurts so much for Jets fans is that…

Style

Products that support breast cancer awareness and research

Asics GT-1000, $100 Asics’ third pink collection in collaboration with Christina Applegate’s Right Action for Women includes this pink-accented version of its best-selling GT-1000 3…

Wellbeing

Dr. Marisa Weiss: Where we stand on breast…

As an oncologist and a survivor herself, Dr. Marisa Weiss knows the urgency felt by those diagnosed with breast cancer. Genetic testing has accelerated the…

Wellbeing

Bees' stingers hold new hope for cancer cure

A promising new lead in the search for a cancer cure has turned up in a place that most people naturally avoid. A team from…

Home

Emily Henderson on small space design

Design expert Emily Henderson shows us how to upgrade our cramped quarters.