Euro-area finance ministers kept all options open as they worked on a rescue plan for Cyprus, even as Cypriot officials ruled out imposing losses on depositors in the country’s banks.
No measure should be taken off the table as policy makers await the outcome of Cyprus’s presidential election later this month, Luxembourg Finance Minister Luc Frieden told reporters before a meeting of euro-area finance chiefs in Brussels today.
“This is one of the options that I don’t find very good because one should try first not to create new rules with every bailout plan, but we should discuss everything,” Frieden said.
Negotiations in the eight months since Cyprus became the fifth euro country to seek aid have focused on the size and terms of a rescue for the government and lenders weakened by their exposure to the Greek economy. Cyprus also faces questions about alleged money-laundering and the role of Russian money in its financial sector.
Cypriot financial institutions such as Bank of Cyprus Plc and Cyprus Popular Bank Pcl lost more than 4 billion euros ($5.4 billion) in a Greek debt restructuring that was part of a second international rescue of Greece last year.
Cyprus will need an independent assessment of its anti-money laundering regulations before an agreement can be reached on final rescue terms, Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-area colleagues, told reporters after the talks. A private-sector firm will need to do the assessment, he said.
“We continue to expect that an agreement on the program could be reached as of March,” Dijsselbloem said.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said the European Commission hasn’t proposed targeting depositors in loss-sharing efforts. Dijsselbloem said ministers didn’t discuss specific measures today.
“We zoomed in on the issue of anti-money laundering and didn’t go into any possible or not possible elements of a program,” Dijsselbloem said.
Vassos Shiarly, the Cypriot finance minister, rejected a so-called bail-in of depositors, which he said would violate the country’s laws.
“The bail-in of depositors is a grossly exaggerated possibility, unlikely to happen,” Shiarly told reporters. “We will not accept it under any circumstances and I don’t think it creates any way forward.”
The Central Bank of Cyprus said in a statement that imposing losses on depositors would violate the country’s constitution.
“Both we and the Cypriot authorities remain committed to signing a memorandum of understanding as soon as possible and are cooperating” with the so-called troika that oversees euro-area bailouts “on all required measures including the ongoing independent assessment of our strong anti-money laundering regime,” the bank said. “Cyprus is strongly committed to protecting investors and depositors in our country.”
The Institute of International Finance, a Washington-based trade group that helped negotiate last year’s Greek debt restructuring, said the euro area faces a challenge as it seeks to shore up Cyprus.
“Despite its diminutive size, it might still be systemically important in the sense that there are potentially important policy precedents in play,” IIF Managing Director Tim Adams told reporters in Washington today. “We think there are, especially in respect of how depositors might be treated going forward.”
Shiarly said his government has been given to understand that its request to Russia for an extension of a 2.5 billion-euro loan will be granted “very soon.”