National Post (National Edition)
CYPRUS BAILOUT
Politicians hope new plan will win favour with EU.
ATHENS• Cyprus’ parliament late Friday passed legislation setting out the rules for resolving the country’s troubled banks, in an effort to secure a deal with the country’s European partners for a ¤10-billion euro bailout, after an aid deal reached last week fell apart when the measures attached to it were voted down.
The law, which gives sweeping powers to the country’s finance minister to restructure the island’s two biggest lenders passed parliament, with 26 lawmakers voting in favour, two against and 25 abstaining.
The country prepares to wind down Cyprus Popular Bank PCL, also known as Laiki Bank, the country’s secondlargest lender, while ringfencing its largest lender, Bank of Cyprus PCL. The plan would involve splitting Laiki’s assets into good and bad units and merging the good assets with Bank of Cyprus.
Cypriot parliament also passed two key bills aimed at helping clinch financing from its international creditors.
Lawmakers gave the nod to imposing strict capital controls, allowing authorities to restrict non-cash transactions, curtail chequing cashing, limit withdrawals and even convert chequing accounts into fixedterm deposits when banks reopen. They have been closed since March 16.
Finally, they passed a law allowing for the formation of a national solidarity fund, which Cyprus is hoping will attract assets and contribution that will go toward financing the country’s teetering economy.
This was part of a plan the Cypriot government put together earlier this week and originally involved pooling assets from its pension funds and real-estate property from the state and the Church of Cyprus.
During the past three days, the Cypriot government has been trying to set another plan to raise ¤5.8-billion in order to receive a ¤10-billion bailout package and rescue the island’s oversized financialservices sector from collapse.
Representatives of the three main international lenders — the International Monetary Fund, the European Central Bank and the European Commission — met Friday morning with President Nicos Anastasiades to examine the proposal he sent to Parliament, where several hundred demonstrators massed outside.
A spokesman for the German chancellor, Angela Merkel, urged Cyprus to return to the bailout plan agreed to last weekend, including the deposit tax, even though Parliament roundly voted against that measure Tuesday.
“When you consider that there was massive resistance against involving the savings,
Not easy to see how tapping pension funds is a good idea
then it is not easy to see how tapping the pension funds, which we view as socially a much more drastic step, is a very good idea,” Steffen Seibert, Ms. Merkel’s spokesman, told reporters.
The suggestion of tapping pension funds triggers a visceral response in Germany, where history has proved the dangers of such ideas. German pensions were tapped to finance both world wars, and the idea remains an anathema to German leaders today.
Some economists said it was almost inevitable that the next bailout draft, if one is required, would have to contain some form of deposit tax — perhaps one restricted to depositors with balances of more than ¤100,000, with the levy at 10% or higher. Smaller accounts are insured by the government, though it is unlikely that the Cypriot government could cover those guarantees.
When eurozone finance ministers hashed out the original bailout terms last weekend, Cypriot officials had resisted limiting the tax to large accounts, evidently to avoid damaging the country’s reputation as a haven for wealthy banking clients. Many of the wealthiest citizens of Russia have euro-denominated bank accounts in Cyprus — one reason that eurozone finance ministers have taken such a hard line.
The Cypriot government has ordered banks to keep automated teller machines filled with cash so long as the banks remain closed. But that has been of little help to the thousands of international companies that do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.
The European authorities said Friday that members of the troika were focused mainly on the laws being drafted by the Cypriots to deal with failing banks and restrict flows of money out of the country.
A delegation of Cypriot officials led by the finance minister, Michalis Sarris, remained in Moscow until Friday morning to press the case for additional aid, but there were no reports of progress, and the officials stayed out of sight.