Eurozone finance ministers have been summoned to Brussels on Sunday, a sign that officials believe a Cyprus bailout deal acceptable to international lenders might be at hand.
As politicians in Cyprus debated on Saturday whether to impose a levy of 20 to 25 per cent on large bank accounts, Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of his 17 counterparts, called all eurozone finance ministers to a meeting at 6pm on Sunday.
Olli Rehn, the EU’s economic chief, said it was “essential” a bailout agreement was reached at the Sunday night eurogroup meeting, but acknowledged that the rejection of last week’s deal by the Cypriot parliament and the subsequent days of uncertainty had left Nicosia with “only hard choices”.
“Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available,” Mr Rehn said, adding that any deal reached Sunday must be “swiftly implemented by Cyprus and its eurozone partners”.
The Cypriot parliament, which approved a sweeping bank restructuring package on Friday night, was expected to vote on the levy on Saturday, as it seeks to overcome final obstacles to a financial rescue and avoid a chaotic bankruptcy.
President Nicos Anastasiades was discussing the Bank of Cyprus levy with leaders from the different political groups on Saturday evening – as well as the possibility of a separate 4 per cent tax on deposits in healthy banks.
The main levy would be applied to deposits exceeding €100,000 at the country’s largest bank, Bank of Cyprus. In exchange, account holders would receive shares in a restructured bank, although government officials have acknowledged that this would imply sharp losses.
The troika of international lenders – the European Central Bank, the International Monetary Fund and the European Commission – has given its blessing to the larger levy, according to Cypriot officials, who said that, contrary to previous claims, it would not require separate approval from the country’s parliament.
Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available- Olli Rehn, the EU economic chief
A similar proposal from international creditors and fellow eurozone governments last Saturday led to shock and outrage in Cyprus, touching off a tumultuous week in which the government turned to Moscow as it sought other means of assistance.
Nicosia’s embrace of the levy is a reflection of its dwindling options as it tries to avoid collapse. To do so, the government must come up with €5.8bn as a condition of a €10bn lifeline from the troika.
The ECB has given the country a deadline of Monday to secure a deal, after which it has threatened to cut the liquidity that has kept Cyprus’ teetering financial system afloat.
The measures it approved will enable the government to wind down the country’s second-largest bank, Laiki, dividing it into a “good” and “bad” bank. The operation is expected to shave more than €2bn from the government’s financing needs.
The package included capital controls, giving the government authority to limit financial transactions in times of crisis. That may help the government to stanch a stampede of bank withdrawals on Tuesday, when Cyprus’ banks are set to reopen for business after being closed last week.
It was a rare move for an EU government and a stark reminder of the severity of the crisis.
As the government and the troika sought to finalise a deal, thousands of bank workers swarmed the finance ministry to protest. Many worked for Laiki, and believe they will lose their jobs, as well as their retirement savings.
In what could pose serious problems for the government, some suggested that they should strike on Tuesday – the day banks are set to reopen after being closed for more than a week.
Amid the uncertainty, Cypriots have queued at cash machines to withdraw their savings while authorities have warned that the delivery of basic goods, such as bread and milk, could be interrupted as early as Tuesday.
[TABLE="class: data-table align-center legacy-table c5"]
[TR]
[TH="class: c3, colspan: 2"] Solidarity levy to fund bank workers’ pensions
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[/TR]
[TR]
[TD="class: row-odd c4, colspan: 2"] The smaller levy being discussed on Saturday night was being billed as a “solidarity contribution”. It is intended to address a problem that has emerged as the government prepares to to wind down the second-largest bank, Laiki. Doing so will wipe out much of the €290m retirement fund built up by the bank’s 2,300 employees, many of whom swarmed the presidential palace and finance ministry in protest on Saturday.
The 4 per cent levy would not affect the deal with the troika, according to Cypriot officials, but would allow the government to return some of the retirement savings for the Laiki workers, most of whom are expecting to be unemployed as of Tuesday.
The details of the scheme, though, are still unclear. It is assumed, for example, that it will only apply to deposits of more than €100,000. But it is not known whether it will target only Cypriot depositors or also Russians and other foreigners.
One Cypriot bank with large Russian deposits, Russian Commercial Bank, has so far been spared any levies – something that Cypriots attribute to Moscow’s influence.
[/TD]
[/TR]
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Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
As politicians in Cyprus debated on Saturday whether to impose a levy of 20 to 25 per cent on large bank accounts, Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of his 17 counterparts, called all eurozone finance ministers to a meeting at 6pm on Sunday.
Olli Rehn, the EU’s economic chief, said it was “essential” a bailout agreement was reached at the Sunday night eurogroup meeting, but acknowledged that the rejection of last week’s deal by the Cypriot parliament and the subsequent days of uncertainty had left Nicosia with “only hard choices”.
“Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available,” Mr Rehn said, adding that any deal reached Sunday must be “swiftly implemented by Cyprus and its eurozone partners”.
The Cypriot parliament, which approved a sweeping bank restructuring package on Friday night, was expected to vote on the levy on Saturday, as it seeks to overcome final obstacles to a financial rescue and avoid a chaotic bankruptcy.
President Nicos Anastasiades was discussing the Bank of Cyprus levy with leaders from the different political groups on Saturday evening – as well as the possibility of a separate 4 per cent tax on deposits in healthy banks.
The main levy would be applied to deposits exceeding €100,000 at the country’s largest bank, Bank of Cyprus. In exchange, account holders would receive shares in a restructured bank, although government officials have acknowledged that this would imply sharp losses.
The troika of international lenders – the European Central Bank, the International Monetary Fund and the European Commission – has given its blessing to the larger levy, according to Cypriot officials, who said that, contrary to previous claims, it would not require separate approval from the country’s parliament.
Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available- Olli Rehn, the EU economic chief
A similar proposal from international creditors and fellow eurozone governments last Saturday led to shock and outrage in Cyprus, touching off a tumultuous week in which the government turned to Moscow as it sought other means of assistance.
Nicosia’s embrace of the levy is a reflection of its dwindling options as it tries to avoid collapse. To do so, the government must come up with €5.8bn as a condition of a €10bn lifeline from the troika.
The ECB has given the country a deadline of Monday to secure a deal, after which it has threatened to cut the liquidity that has kept Cyprus’ teetering financial system afloat.
The measures it approved will enable the government to wind down the country’s second-largest bank, Laiki, dividing it into a “good” and “bad” bank. The operation is expected to shave more than €2bn from the government’s financing needs.
The package included capital controls, giving the government authority to limit financial transactions in times of crisis. That may help the government to stanch a stampede of bank withdrawals on Tuesday, when Cyprus’ banks are set to reopen for business after being closed last week.
It was a rare move for an EU government and a stark reminder of the severity of the crisis.
As the government and the troika sought to finalise a deal, thousands of bank workers swarmed the finance ministry to protest. Many worked for Laiki, and believe they will lose their jobs, as well as their retirement savings.
In what could pose serious problems for the government, some suggested that they should strike on Tuesday – the day banks are set to reopen after being closed for more than a week.
Amid the uncertainty, Cypriots have queued at cash machines to withdraw their savings while authorities have warned that the delivery of basic goods, such as bread and milk, could be interrupted as early as Tuesday.
[TABLE="class: data-table align-center legacy-table c5"]
[TR]
[TH="class: c3, colspan: 2"] Solidarity levy to fund bank workers’ pensions
[/TH]
[/TR]
[TR]
[TD="class: row-odd c4, colspan: 2"] The smaller levy being discussed on Saturday night was being billed as a “solidarity contribution”. It is intended to address a problem that has emerged as the government prepares to to wind down the second-largest bank, Laiki. Doing so will wipe out much of the €290m retirement fund built up by the bank’s 2,300 employees, many of whom swarmed the presidential palace and finance ministry in protest on Saturday.
The 4 per cent levy would not affect the deal with the troika, according to Cypriot officials, but would allow the government to return some of the retirement savings for the Laiki workers, most of whom are expecting to be unemployed as of Tuesday.
The details of the scheme, though, are still unclear. It is assumed, for example, that it will only apply to deposits of more than €100,000. But it is not known whether it will target only Cypriot depositors or also Russians and other foreigners.
One Cypriot bank with large Russian deposits, Russian Commercial Bank, has so far been spared any levies – something that Cypriots attribute to Moscow’s influence.
[/TD]
[/TR]
[/TABLE]
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.