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Cyprus Delays Vote on Bailout Plan Cyprus Delays Vote on Bailout Plan
(about 1 hour later)
NICOSIA, Cyprus — Cyprus’s Parliament on Monday delayed an emergency vote on a bailout plan for the second time in as many days as President Nicos Anastasiades faced trouble rounding up support among lawmakers.NICOSIA, Cyprus — Cyprus’s Parliament on Monday delayed an emergency vote on a bailout plan for the second time in as many days as President Nicos Anastasiades faced trouble rounding up support among lawmakers.
A vote was scheduled for Tuesday at 4 p.m. local time, the Parliament announced, although there was the possibility it could be delayed until Friday.A vote was scheduled for Tuesday at 4 p.m. local time, the Parliament announced, although there was the possibility it could be delayed until Friday.
As European stock markets faltered and the euro fell against major currencies, the government said it would also keep Cypriot banks shuttered until at least Friday, well beyond a bank holiday that was supposed to end Monday. The move is aimed at staving off a possible bank run. As global stock markets faltered and the euro fell against major currencies, the government said it would also keep Cypriot banks shuttered until at least Friday, well beyond a bank holiday that was supposed to end Monday. The move was aimed at staving off a possible bank run.
The main euro zone blue-chip stock index fell nearly 2 percent, mirroring declines earlier in Asia, and Wall Street stocks were expected to open lower. The main euro zone blue-chip stock index fell 1.5 percent in afternoon trading, less than the declines earlier in Asia, and Wall Street stocks opened down about 0.6 percent.
Mr. Anastasiades warned Sunday that a failure to pass the a 10 billion euro, or $13 billion, deal could lead to a major shock, including “a complete collapse of the banking sector” and the possibility that the divided island nation would have to leave the euro altogether. Mr. Anastasiades warned Sunday that a failure to pass the €10 billion, or $13 billion, deal could lead to a major shock, including “a complete collapse of the banking sector” and the possibility that the divided island nation would have to leave the euro altogether.
The bailout plan, worked out early Saturday in Brussels, brought a sharp backlash among Cypriots over a critical break with recent European tradition: For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those in insured accounts — will being called on to bear part of the cost, 5.8 billion euros, through one-time levies on their savings. The bailout plan, worked out early Saturday in Brussels, brought a sharp backlash among Cypriots over a critical break with recent European tradition: For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those with insured accounts — are being called on to bear part of the cost, €5.8 billion, through one-time levies on their savings.
That strikes many people as deeply unfair, and has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright. The previous bailouts have been financed by taxpayers, and the new direction has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright.
Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered. A crowd of protesters gathered in front of the presidential palace Monday, shouting angrily at Mr. Anastasiades and inveighing against Germany and European leaders as he entered the building to meet with his cabinet. “Merkel, U stole our life savings,” read one banner tied to a bus stop. “EU, who is next, Spain or Italy?” read another.
Mr. Anastasiades’s cabinet was meeting Monday amid fears that the European Union might have reached its “Lehman Brothers moment,” a reference to the chaos that followed the decision of the U.S. government to allow the investment bank Lehman Brothers to fail in September 2008. Cypriot political leaders were discussing revisions to the deal to make the levy more palatable to citizens and get the bailout through Parliament, including reducing the percentage to be paid by those with deposits of less than €100,000. Under the current plan, a one-time tax of 9.9 percent is to be levied on bank deposits of more than €100,000, with a 6.75 percent tax applied to smaller accounts.
Cypriot political leaders were discussing revisions to the deal announced Saturday to make the levy more palatable to citizens and get the bailout through Parliament, including reducing the percentage to be paid by those with deposits of less than 100,000 euros. The group of finance ministers from the 17 countries using the euro were on standby Monday for a possible teleconference later in the day to assess the outcome of discussions among party leaders in Cyprus.
In addition to E.U. support, Russia’s help is also essential, because of the large amount of Russian funds held by Cypriot banks. But President Vladimir Putin on Monday described the bailout plan as “unfair, unprofessional and dangerous,” Reuters quoted a Kremlin Spokesman, Dmitry Peskov, as saying. Jeroen Dijsselbloem, the president of the group, had declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
In Berlin, the German finance minister, Wolfgang Schäuble, sought to deflect criticism for the damage to depositors, saying the “levy on deposits below 100,000 euros was not the creation of the German government,” according to Reuters. “If one reached another solution, we would not have the slightest problem.” A key question for the finance ministers was expected to be whether any revised formula could still deliver the €5.8 billion from depositors agreed to in the bailout deal. The plan, a so-called bail-in, also includes junior bondholders in Cypriot banks, and that component of the deal still was expected to bring in about €1.4 billion.
Many analysts and economists insisted that Cyprus’s problems were unique, and said they expected the fallout from the trauma there to be limited. They noted that Cyprus’s banks, whose assets dwarf the island’s gross domestic product, are holding tens of billions of euros in Russian deposits of dubious provenance. That, in turn, is raising fears in other euro zone nations that non-Cypriot taxpayers would be bailing out wealthy Russians, something that has not been a concern with other euro nations in distress. Russia’s support of the plan was also essential, because of the large amount of Russian funds held by Cypriot banks. But President Vladimir Putin on Monday described the bailout plan as “unfair, unprofessional and dangerous,” the Interfax news agency quoted a Kremlin spokesman, Dmitry Peskov, as saying.
And analysts at Société Générale noted that the Cypriot banks had issued debt equivalent to just 1.3 percent of their total liabilities, meaning that if the European Union insists on so-called bail-in by creditors, depositors were the only ones able to pick up the tab. Foreign deposits were €26.8 billion out of a total of €64.8 billion, as of December, €15.4 billion of which were deposits from Russians in Cyprus, according to the Regional Banking Association of Russia.
In Berlin, the German finance minister, Wolfgang Schäuble, sought to deflect criticism for the damage to depositors, saying the “levy on deposits below €100,000 was not the creation of the German government,” according to Reuters. “If one reached another solution, we would not have the slightest problem.”
Many analysts and economists insisted that Cyprus’s problems were unique and said they expected the fallout from the trauma there to be limited. They noted that Cyprus’s banks, whose assets dwarf the island’s gross domestic product, are holding tens of billions of euros in Russian deposits. That, in turn, raised fears in other euro zone nations that non-Cypriot taxpayers would be bailing out wealthy Russians, something that has not been a concern with other euro nations in distress.
Goldman Sachs analysts said that, assuming Parliament approved a deal, “the direct ramifications from Cyprus will likely be contained,” thanks partly to the European Central Bank’s commitment to back up euro zone banks.Goldman Sachs analysts said that, assuming Parliament approved a deal, “the direct ramifications from Cyprus will likely be contained,” thanks partly to the European Central Bank’s commitment to back up euro zone banks.
“Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout,” analysts at DBS in Singapore wrote in a research note on Monday.“Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout,” analysts at DBS in Singapore wrote in a research note on Monday.
The markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.” The financial markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.”
More broadly, the analysts at Société Générale noted that the approach adopted over the Cyprus bailout also highlighted that there is still “no standard approach of tackling the euro debt crisis.” More broadly, analysts at Société Générale noted that the approach adopted over the Cyprus bailout also highlighted that there is still “no standard approach of tackling the euro debt crisis.”
In afternoon trading in Europe, the Euro Stoxx 50, a benchmark for euro zone blue chips, was down 1.9 percent. In London, the FTSE-100 index dropped 1.0 percent. Yields on Spanish and Italian government bonds — which move in the opposite direction of the prices — rose, as investors sought the perceived safety of German and other bonds. In afternoon trading in Europe, the Euro Stoxx 50, a benchmark for euro zone blue chips, was down 1.5 percent. In London, the FTSE 100 index dropped 0.6 percent. Yields on Spanish and Italian government bonds rose, as investors sought the perceived safety of German and other bonds.
Trading in U.S. equity index futures pointed to expectations that stocks would fall at the opening bell The euro fell against the dollar, dropping to $1.2951 from a close of $1.3074 on Friday. The decline took the currency to its weakest level since late last year. Cyprus’s markets were closed for a bank holiday, and officials have suggested they might extend the holiday for a second day Tuesday.
The euro fell against the dollar, dropping to $1.2956 from a close of $1.3074 on Friday. The decline took the currency to its weakest level since late last year. Cyprus’s markets were closed for a bank holiday, and officials have suggested they might extend the holiday for a second day Tuesday.
In Asian trading, the Nikkei 225-stock average tumbled 2.7 percent in Tokyo, while the Sydney benchmark Australia, the S.&P./ASX 200 index, closed 2.1 percent lower. The Hang Seng index in Hong Kong fell 2 percent.In Asian trading, the Nikkei 225-stock average tumbled 2.7 percent in Tokyo, while the Sydney benchmark Australia, the S.&P./ASX 200 index, closed 2.1 percent lower. The Hang Seng index in Hong Kong fell 2 percent.
David Jolly reported from Paris. Bettina Wassener in Hong Kong and Andreas Riris in Nicosia contributed reporting. David Jolly reported from Paris. James Kanter in Brussels, Bettina Wassener in Hong Kong and Andreas Riris in Nicosia contributed reporting.