ECB Gives Cyprus Funding Deadline as New Plan Sought
Cypriot police scuffled with protesters, including employees of Cyprus Popular Bank Pcl (CPB), outside Parliament as President Nicos Anastasiades maneuvered at home and in Russia to stave off financial collapse.
Seeking to unlock an international bailout, the Cypriot central bank proposed a bill to overhaul the banking system that would allow Cyprus Popular, the country’s second-largest lender, to avoid a “catastrophic” bankruptcy and protect insured deposits to an amount of 100,000 euros ($129,000).
Euro-area finance ministers said they expect a new proposal from Cyprus “as rapidly as possible” on how the government plans to raise the 5.8 billion euros needed to trigger emergency loans. The ministers discussed Cyprus in a teleconference this evening.
Cyprus in June became the fifth euro-area nation to request a rescue after Greece’s debt restructuring, the largest in history, trashed the financial health of lenders including Bank of Cyprus Plc (BOCY) and Cyprus Popular.
The euro was trading at $1.2985 at 4:18 p.m. in New York, down 0.3 percent. The Stoxx Europe 600 index fell 0.7 percent to 294.47.
On March 16, euro finance chiefs agreed to an unprecedented tax on Cypriot bank deposits as officials unveiled a 10 billion- euro rescue plan for the country. The government amended an initial proposal to exempt deposits of up to 20,000 euros, but failed to win support in parliament as popular dissent mounted.
Once Cyprus presents its new proposal and the so-called troika that oversees euro-area bailouts has analyzed it, euro ministers will “be prepared to continue negotiations on an adjustment program, while respecting the parameters defined earlier,” according to today’s statement.
“After the conclusion of such negotiations, the Cyprus authorities should begin legislating the elements of such an agreement,” the Eurogroup said, reiterating the importance of fully guaranteeing bank deposits of less than 100,000 euros.
As the standoff continued, Standard & Poor’s cut its rating on Cyprus by one level to CCC from CCC+, citing “acute problems” in the island nation’s banking industry. Investors often ignore ratings, evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011.
“We would likely lower the rating if Cyprus’s government fails to obtain a financing program soon,” S&P said. “If it secures a program, we could also lower the ratings later this year if we believe the government is unable to fulfill the program’s conditions.”
The European Central Bank turned up the pressure today on Anastasiades and euro-area finance chiefs to deliver a rescue package, saying it may cut off emergency funds to Cypriot banks after March 25 unless a plan is in place “that would ensure the solvency of the concerned banks.”
Central bank Governor Panicos Demetriades unveiled the bank restructuring bill, saying it would avert “the risk of bank collapse,” help meet the conditions for an aid deal with European authorities and the International Monetary Fund and allow Cypriot banks to reopen on March 26. His statement didn’t divulge details of the plan.
Despo Pambaka, 28, a Cyprus Popular employee for almost five years, said she feared for her job. “This is not the Europe we wanted to enter,” she said during the protest outside Parliament. “The big bosses running the banks took their bonuses and left the people on their own. We expected help from the European Union and this is what we get.”
The government also submitted a draft law to create an “investment solidarity fund,” state-run CYBC television reported. The fund is intended to help raise the 5.8 billion euros needed to trigger emergency loans, Athens News Agency reported. Finance Minister Michael Sarris said in Moscow that while Russia won’t lend money to Cyprus, it’s looking at investment in the energy industry.
Russia is in talks over its possible role in the fund, the RIA Novosti news agency reported. President Vladimir Putin held talks in Moscow today with Jose Barroso, head of the European Commission, Putin’s spokesman Dmitry Peskov told reporters.
Earlier, Prime Minister Dmitry Medvedev said Cyprus’s financial turmoil may force Russia to review the share of euros in its international currency reserves, the world’s fourth- largest stockpile.
German lawmaker Hans Michelbach, a member of Chancellor Angela Merkel’s Christian Democratic bloc, said the new Cypriot plan seems to fall 1 billion euros short of the 5.8 billion-euro target and would increase state debt.
“There can be no help for Cyprus without full implementation of all the main points,” Michelbach said. “Cyprus has it in its own hands to avoid the state’s bankruptcy, but the deadline is running out.”
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