This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/03/21/business/global/after-deal-is-rejected-cyprus-scrambles-to-find-funds.html

The article has changed 6 times. There is an RSS feed of changes available.

Version 1 Version 2
After Deal Fails, Cyprus Scrambles to Find Funds With No Deal on Horizon, Cyprus Keeps Banks Closed
(about 2 hours later)
NICOSIA — Cyprus’s three international lenders descended upon the presidential palace here Wednesday for discussions on whether and how a financial lifeline for the crisis-hit nation could be secured, as the Cypriot finance minister pressed his case in Moscow in hopes of securing further aid from Russia. NICOSIA, Cyprus — Scrambling to placate international lenders, Cyprus late Wednesday proposed to nationalize the country’s pension funds and conduct an emergency bond sale to help raise the 5.8 billion euros the indebted country needs to secure a bailout.
The talks were taking place a day after the Cypriot Parliament rejected a bill to impose a tax on average depositors’ bank accounts as a condition for a bailout deal. The proposals are meant to slash the amount of money that would be raised a controversial tax on bank deposits, as originally planned in a 10 billion euro international bailout package that the Cypriot Parliament rejected the night before.
The government, and even the Church of Cyprus, scrambled Wednesday to come up with new ways to meet the demands of the three lenders known as the troika — the European Commission, the European Central Bank and the International Monetary Fund — to avoid an imminent collapse of its banking sector. But even the revised plan contains a bank tax, that while much smaller than originally proposed, might still not be palatable to Parliament. Under the new plan, all Cypriot bank deposits of up to 100,000 euros would be hit by a one-time tax of 2 percent. Deposits about that threshold would be subject to a 5 percent levy.
A deal must be reached by Thursday, the day that a bank holiday in Cyprus is scheduled to end, according to the Cypriot central bank. In case an accord is not struck, the Finance Ministry is preparing to order banks to stay closed through at least next Tuesday. The fallback was being cobbled together as Cyprus’s finance minister pressed his case in Moscow Wednesday in hopes of securing additional aid from Russia. 
The government extended through next Tuesday a bank holiday designed to prevent a run on Cyprus’s financial institutions. Banks have frozen all accounts in a  financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.
Banks have been closed since Saturday, and authorities have ordered banks to keep A.T.M.’s filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies with accounts in Cyprus, which cannot transfer money in and out of their accounts to conduct  business.
The extended bank holiday is aimed at buying time for Cypriot authorities to reach an agreement with the International Monetary Fund, the European Central Bank and the European Commission, which were not certain to approve Cyprus’s latest plan.
Three banks dominate the economy, and each is edging close to collapse. The government was also making tentative plans  to merge at least two of them — Cyprus Popular Bank and Bank of Cyprus — and placing the healthy assets into one entity, while moving troubled assets into a so-called bad bank.
European officials, and especially the European Central Bank, are watching the situation with alarm, said one person with direct knowledge of the discussions, who was not authorized to speak publicly.European officials, and especially the European Central Bank, are watching the situation with alarm, said one person with direct knowledge of the discussions, who was not authorized to speak publicly.
If a deal is not reached soon for a bailout that would support the banks, or if Cyprus does not find funds through some other route in the meantime, European officials fear that “the damage would be enormous, and the country itself would be at risk of collapse,” the person said.If a deal is not reached soon for a bailout that would support the banks, or if Cyprus does not find funds through some other route in the meantime, European officials fear that “the damage would be enormous, and the country itself would be at risk of collapse,” the person said.
If that happens, the person added, officials are concerned that a clear risk would arise that Cyprus could “go out of the euro,” creating “a painful situation that would spur chaos.”If that happens, the person added, officials are concerned that a clear risk would arise that Cyprus could “go out of the euro,” creating “a painful situation that would spur chaos.”
The troika of lenders is insisting that Cyprus come up with €5.8 billion, or $7.5 billion, of the €10 billion bailout negotiated last weekend. The bank deposits tax, which Parliament voted down overwhelmingly Tuesday along with the bailout plan, was part of that bargain. The troika of lenders is insisting that Cyprus come up with 5.8 billion euros, or $7.5 billion, of the 10 billion euro bailout negotiated last weekend. The bank deposits tax, which Parliament voted down overwhelmingly Tuesday along with the bailout plan, was part of that bargain.
The finance minister of Cyprus, Michalis Sarris, met on Wednesday morning with his Russian counterpart, Anton G. Siluanov, at the Russian Finance Ministry, and in the afternoon for about 90 minutes with a deputy prime minister, Igor I. Shuvalov, at the main government offices in the Russian White House.The finance minister of Cyprus, Michalis Sarris, met on Wednesday morning with his Russian counterpart, Anton G. Siluanov, at the Russian Finance Ministry, and in the afternoon for about 90 minutes with a deputy prime minister, Igor I. Shuvalov, at the main government offices in the Russian White House.
Emerging from the morning session, Mr. Sarris reported no progress. “We had a very good first meeting — a very constructive, very honest discussion,” he said. “We underscored how difficult the situation is, and we will now continue our discussions to find a solution by which we hope we will be getting some support from Russia.”Emerging from the morning session, Mr. Sarris reported no progress. “We had a very good first meeting — a very constructive, very honest discussion,” he said. “We underscored how difficult the situation is, and we will now continue our discussions to find a solution by which we hope we will be getting some support from Russia.”
He said discussions would continue. “We will stay here until we reach some agreement,” Mr. Sarris said.He said discussions would continue. “We will stay here until we reach some agreement,” Mr. Sarris said.
Russian officials would not comment on the afternoon session but said the meetings were done for the day. A news conference planned at the Cypriot Embassy was canceled on Wednesday afternoon.Russian officials would not comment on the afternoon session but said the meetings were done for the day. A news conference planned at the Cypriot Embassy was canceled on Wednesday afternoon.
Russian leaders, including President Vladimir V. Putin, had reacted furiously to the bank deposit tax, which they said caught them by surprise.Russian leaders, including President Vladimir V. Putin, had reacted furiously to the bank deposit tax, which they said caught them by surprise.
In a sign that Russian interest in developing off-shore natural gas reserves may be part of the discussions, the Cypriot energy minister, Georgios Lakkotrypis, was also in Moscow on Wednesday.In a sign that Russian interest in developing off-shore natural gas reserves may be part of the discussions, the Cypriot energy minister, Georgios Lakkotrypis, was also in Moscow on Wednesday.
Mr. Shuvalov, in public comments on Tuesday, had expressed reluctance to extend any additional aid to Cyprus given the lack of consultation. But some flexibility seemed inevitable given that Russian citizens have about $30 billion on deposit in the failing Cypriot banking system. Russia has already given Cyprus a €2.5 billion loan, and talks have been under way for months about additional aid. Mr. Shuvalov, in public comments on Tuesday, had expressed reluctance to extend any additional aid to Cyprus given the lack of consultation. But some flexibility seemed inevitable given that Russian citizens have about $30 billion on deposit in the failing Cypriot banking system. Russia has already given Cyprus a 2.5 billion euro loan, and talks have been under way for months about additional aid.
In his comments outside the Russian Finance Ministry, Mr. Sarris denied that there had been a specific offer of help from Gazprom, the giant Russian natural gas producer. “There were no offers — nothing concrete,” he said. He added: “We are continuing discussions. We are happy with a good beginning.”In his comments outside the Russian Finance Ministry, Mr. Sarris denied that there had been a specific offer of help from Gazprom, the giant Russian natural gas producer. “There were no offers — nothing concrete,” he said. He added: “We are continuing discussions. We are happy with a good beginning.”
In Nicosia, a Cypriot government spokesman said President Nicos Anastasiades’s cabinet had forged a new proposal that aimed to “reduce the €5.8 billion haircut from depositors, by borrowing from our own resources.” He did not provide details, but state television reported that consideration was being given to tapping Cyprus’s national pension fund or issuing new debt. In Nicosia, a Cypriot government spokesman said President Nicos Anastasiades’s cabinet had forged a new proposal that aimed to “reduce the 5.8 billion euro haircut from depositors, by borrowing from our own resources.” He did not provide details, but state television reported that consideration was being given to tapping Cyprus’s national pension fund or issuing new debt.
And in a surprise twist, the head of the Church of Cyprus, Archbishop Chrysostomos II, went on television to propose putting all of its properties up as collateral so that the state could issue a new round of sovereign bonds to raise money. The church is one of the largest and most influential investors on this Mediterranean island, with extensive holdings in banks, real estate and other interests.And in a surprise twist, the head of the Church of Cyprus, Archbishop Chrysostomos II, went on television to propose putting all of its properties up as collateral so that the state could issue a new round of sovereign bonds to raise money. The church is one of the largest and most influential investors on this Mediterranean island, with extensive holdings in banks, real estate and other interests.
The archbishop suggested that all of the Church’s dioceses, parishes and monasteries — which are also big investors — could then buy a portion of the bonds to help the country at a time of need.The archbishop suggested that all of the Church’s dioceses, parishes and monasteries — which are also big investors — could then buy a portion of the bonds to help the country at a time of need.
Describing the church’s holdings as “huge,” the archbishop said it would “put all its property is in the country’s disposal in order to support the people, avoid the banking collapse and help the country stand on its own feet.”Describing the church’s holdings as “huge,” the archbishop said it would “put all its property is in the country’s disposal in order to support the people, avoid the banking collapse and help the country stand on its own feet.”
He said Parliament had made the right decision in rejecting the bailout terms “and sent a clear message to Europeans that they should learn to respect smaller countries.”He said Parliament had made the right decision in rejecting the bailout terms “and sent a clear message to Europeans that they should learn to respect smaller countries.”
The church is the biggest stakeholder in Hellenic Bank, Cyprus’s third-biggest bank, and one of the biggest shareholders in the Bank of Cyprus, the largest bank. It owns hotels, vast swaths of land and a lucrative beverage company, Keo, that produces wines, beers and bottled water and is the biggest importer of Heineken beer.The church is the biggest stakeholder in Hellenic Bank, Cyprus’s third-biggest bank, and one of the biggest shareholders in the Bank of Cyprus, the largest bank. It owns hotels, vast swaths of land and a lucrative beverage company, Keo, that produces wines, beers and bottled water and is the biggest importer of Heineken beer.
It was unclear whether the troika would find such a proposal to be part of a viable solution for Cyprus. The moves, however, are a clear sign that Cyprus is trying to figure out ways to reduce its dependence on international lenders and avoid the harsh terms that would be attached to a bailout from them.It was unclear whether the troika would find such a proposal to be part of a viable solution for Cyprus. The moves, however, are a clear sign that Cyprus is trying to figure out ways to reduce its dependence on international lenders and avoid the harsh terms that would be attached to a bailout from them.
Fears of a bank run if Cyprus cannot negotiate a bailout deal have already led the government to extend a bank holiday to Thursday that was to have expired Tuesday. Reports here indicate that the bank closing could be extended again, through Friday, to dovetail with a three-day religious holiday through next Monday. That would keep banks closed until next Tuesday to give officials more time to work out a deal. Fears of a bank run if Cyprus cannot negotiate a bailout deal had already led the government to extend a bank holiday that was to have expired Tuesday. The latest extension dovetails with a three-day religious holiday through next Monday. That would keep banks closed until next Tuesday to give officials more time to work out a deal.
Cypriot banks have been instructed to keep automated teller machines full on the island for the duration of the bank holiday. “Until a solution is found, we need to protect the banks,” Cyprus’s deputy bank governor, Spyros Stavrinakis, said Wednesday. “Until a solution is found, we need to protect the banks,” Cyprus’s deputy bank governor, Spyros Stavrinakis, said Wednesday.
Three banks dominate the economy, and each is edging close to collapse. The banks racked up huge losses in the past several years by issuing loans to businesses in neighboring Greece that are now virtually worthless as that country grapples with the fourth year of a severe recession. The banks racked up huge losses in the past several years by issuing loans to businesses in neighboring Greece that are now virtually worthless as that country grapples with the fourth year of a severe recession.
The Cypriot banks also took huge financial losses on large holdings of Greek debt, which they bought when times were good in order to profit from an attractive interest rate.The Cypriot banks also took huge financial losses on large holdings of Greek debt, which they bought when times were good in order to profit from an attractive interest rate.
The bailout Cyprus is seeking has outraged average Cypriots, many of whom see the terms of the original proposal as little more than the government skimming their bank accounts to pay for the banks’ mistakes.The bailout Cyprus is seeking has outraged average Cypriots, many of whom see the terms of the original proposal as little more than the government skimming their bank accounts to pay for the banks’ mistakes.
David M. Herszenhorn reported from Moscow. Andreas Riris contributed reporting from Nicosia.David M. Herszenhorn reported from Moscow. Andreas Riris contributed reporting from Nicosia.