ECB Gives Cyprus Funding Deadline

Cypriot President Anastasiades works on plan to stave off financial collapse.

The European Central Bank said it may cut Cypriot banks off from emergency funds after March 25 as the island nation’s president, Nicos Anastasiades, scrambled to forge agreement on a plan to stave off financial collapse.

The ECB’s Governing Council said today that so-called emergency liquidity assistance, or ELA, “could only be considered” after Monday if an aid program from the euro area and International Monetary Fund “that would ensure the solvency of the concerned banks” is in place, the central bank said today in a statement.

The Cypriot government may propose a revamped bank-deposit levy to raise 5.8 billion euros ($7.5 billion), after lawmakers rejected a previous measure, a Cypriot official said. In Moscow, Finance Minister Michael Sarris pressed Russia for aid, offering “opportunities” including banking and natural-gas assets in return.

Euro-area finance ministers on March 16 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.

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 and Cyprus Popular Bank Pcl, the nation’s two biggest.

Dutch Finance Minister Jeroen Dijsselbloem, who leads meetings of euro-area finance chiefs, told European Union lawmakers in Brussels today that it’s up to Cyprus to come forward with a new proposal for raising revenue to trigger emergency loans. The Eurogroup has insisted that Cyprus meet its 5.8 billion-euro revenue target, while allowing flexibility on how the levy is structured.

Cyprus central bank chief Panicos Demetriades said in comments broadcast on state-run CYBC television today that he expects a bailout program to be agreed by the ECB deadline.

Anastasiades met with political party leaders this morning. If they reach an agreement, a new bill could be submitted to Parliament today, CYBC reported, without saying how it got the information.

 

‘Durable and Fair’

The plan could include the creation of an investment fund capable of issuing bonds linked to future gas revenue, the Athens News Agency reported, without saying how it got the information.

“The government of Cyprus needs to decide what it wants,” French Finance Minister Pierre Moscovici said today on RMC radio. “It needs to make a choice both for Europe and for its people to find a solution that is durable and fair.”

The Cypriot central bank has ordered lenders to remain closed through tomorrow. With a national holiday on March 25, account-holders therefore won’t have access to their money before Tuesday.

In Moscow, Sarris said Cyprus is “asking for help clearly, but something that would make also economic sense for Russia.” Cyprus seeks the extension of 2.5 billion-euro loan granted by Russia in December 2011, and a fresh loan of 5 billion euros, Vedomosti reported, without citing anyone.

European officials have struggled to find an agreement that would rescue Cyprus, which accounts for less than half of a percent of the euro region’s economy, without unsettling investors in larger countries. Other elements of the rescue include asset sales and an increase in the corporate tax rate to 12.5 percent from 10 percent.

The proposed EU bailout of Cyprus is “absurd” and “surprising in its unpredictability and lack of consistency,” Russian Prime Minister Dmitry Medvedev said at a conference today in Moscow.

 

Bloomberg News

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