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Mood Darkens in Cyprus as Deadline Is Set for Bailout Mood Darkens in Cyprus as Deadline Is Set for Bailout
(about 1 hour later)
NICOSIA, Cyprus — Cyprus faces a hardened deadline of Monday to secure a new agreement on an urgently needed bailout, after the European Central Bank said Thursday it would shut off access to crucial low-cost bank funding if an accord were not reached by then. NICOSIA — Under a European Central Bank threat to shut off crucial financing for banks in Cyprus without a rapid accord, members of Parliament gathered to vote Thursday on yet another revamped formula for securing an international bailout.
Meanwhile, the mood turned sour in Cypriot cities, where people flocked to cash machines Thursday to withdraw as much money as possible after the government declared that banks would remain closed until next Tuesday to give officials time to renegotiate the bailout deal. In Cypriot streets, meanwhile, the mood turned increasingly dark. Riot police clashed with some protesters in front of Parliament as about 200 demonstrators gathered outside.
With anger growing, Cyprus’s president, Nicos Anastasiades, was set to propose a revised plan later Thursday to scrap a controversial tax on bank deposits. But if the government does not raise enough money through other means to satisfy creditors, that plan would need to be revised. Police also scuffled there with employees of Cyprus Popular Bank, second largest in the country, after the Bank of Cyprus. They had turned out amid rumors that the bank could be shut down within hours. The central bank issued a denial, but warned that Cyprus Popular Bank risked an immediate default if the measure was not passed by Parliament.
And in a rare public mea culpa, the head of the euro zone finance ministers sought to defuse tensions by taking the blame for the proposal to levy a one-time tax on small accountholders as a condition of the bailout. The proposal was roundly rejected by the Cypriot Parliament on Tuesday. Throughout the day and into the evening, people throughout this country of about 1.1 million flocked to cash machines in even greater numbers than in recent days to withdraw as much money as possible, after the government declared that banks would remain closed until next Tuesday morning to give officials time to reach terms on a bailout deal. Lines of two or three dozen people or more were common sights at automated teller machines.
“As the Eurogroup president, I will take responsibility,” Jeroen Dijsselbloem told a hearing at the European Parliament. He acknowledged that he should have “communicated more right from the start” on why the tax should not be seen as a threat to savings in other European countries. With anger growing, Cyprus’s president, Nicos Anastasiades, presented Parliament with a plan that scrapped altogether a controversial tax on bank deposits. Experts warned, however, that the deposit-tax plan might yet need to be revisited unless the government found a way through other means to reach the target of €5.8 billion, or $7.5 billion, needed to satisfy international negotiators,
The European Central Bank gave Cyprus until Monday to reach an agreement with the European Union and the International Monetary Fund if it wanted to continue to receive the low-interest loans that are essential to keeping its banks afloat. The central bank said the new package included “consolidation measures” to enable Cyprus Popular Bank, also known as Laiki Bank, to continue operating. But it warned that if Parliament failed to pass the measure, “Laiki will default immediately, causing major consequences to its employees and its clients.”
From that point onward, the E.C.B. said it would only consider a fresh influx of emergency funding, as requested by Cyprus, “if an E.U./I.M.F. program is in place that would ensure the solvency of the concerned banks.” The European Central Bank said Thursday that Cyprus would have until Monday to reach an agreement with the European Union and the International Monetary Fund if the government wanted its beleaguered banks to continue to receive the low-interest loans that are essential to keeping them afloat.
The government on Thursday was planning to propose nationalizing pension funds from state-run companies and conducting an emergency bond sale to help raise the €5.8 billion the indebted country needs to secure the bailout. The plan sent to Parliament on Thursday proposed to nationalize pension funds from state-run companies and conduct an emergency bond sale to help raise the €5.8 billion the indebted country needs to secure a €10 billion bailout. Gone was any reference to a deposit tax, which the Parliament had roundly rejected in a vote two nights earlier.
The proposals were meant to sharply reduce the amount of money that would be raised by the tax on bank deposits, which was a condition of the original bailout deal negotiated with Cyprus’s three international lenders — the E.C.B., the I.M.F. and the European Commission, known collectively as the troika. Mr. Anastasiades’s government tried to hash out a deal that would not only get through Parliament but would pass muster with the three international organizations — the E.C.B., the I.M.F. and the European Commission that would provide the bailout money. Representatives of this troika of lenders were in Nicosia on Thursday but were not certain to sign off on the government’s latest plan.
Representatives of the troika were in Nicosia on Thursday but were not certain to sign off on Cyprus’s latest plan. Cypriot banks, which have been closed since Saturday, will remain closed through a national holiday next Monday, the government announced, hoping to avoid a bank run while the bailout was being renegotiated.
Cypriot banks, which have been closed since Saturday, will remain closed through a national holiday Monday, the government announced late Wednesday, hoping to avoid a bank run while the bailout is being renegotiated. But at branches of Laiki Bank and the Bank of Cyprus in the Cypriot capital, Nicosia, where lines had virtually disappeared over the previous three days, there was an air of exasperation, anger and anxiety Thursday morning as people hoped that money would still be in the machines by the time it was their turn to make a withdrawal. Only one of two cash machines at each bank branch was working.
Riot police clashed with some protesters in front of the parliament building early in the evening, as about 200 demonstrators gathered outside. Police also scuffled with employees of Cyprus Popular Bank who had turned out amid rumors the country’s second-largest bank could be shut down as early as Thursday night. “Time is up — we want our cash,” said Maria Melitou, an accountant.
The central bank said the new package to be considered by Parliament would include “consolidation measures” for the bank, also known as Laiki Bank, to continue operating. If Parliament failed to pass the measure, “Laiki will default immediately, causing major consequences to its employees and its clients,” the central bank said. “Our friends in Europe brought us to this point,” she added. “We expected more.”
At bank branches in the Cypriot capital, Nicosia, where lines had virtually disappeared over the last three days, there was an air of exasperation, anger and anxiety Thursday as people hoped that funds would still be on hand by the time it was their turn to make a withdrawal. Only one of two cash machines at each bank branch was working. Irena Margilou, the 13th person in an 18-person line at Laiki Bank’s cash machine, said bitterly, “We don’t know what the future holds.”
“Time is up — we want our cash,” said Maria Melitou, an accountant. “Our friends in Europe brought us to this point. We expected more.” Ms. Margilou questioned what she said was German insistence that the Cypriot government skim money from people’s bank accounts to secure the €10 billion bailout.
Irena Margilou, 32, the 13th person in an 18-person line at Laiki Bank’s cash machine, spoke in an embittered voice. “We don’t know what the future holds,” she said. “It’s like you’re telling us to just leave our money in our mattress,” she said. “What is happening to European solidarity?”
She questioned what she said was German insistence that the Cypriot government skim money from people’s bank accounts to secure a €10 billion, or $13 billion, bailout. “It’s like you’re telling us to just leave our money in our mattress,” she said. “What is happening to European solidarity?” In Limassol, a coastal city that is about an hour’s drive southeast of Nicosia and is crowded with Russian residents, lines of 25 to 30 people snaked in front of every automated teller machine that still had cash. Many of the wealthiest citizens of Russia, which is not in the euro currency union, have bank accounts in Cyprus — which is one reason euro zone finance ministers have taken such a hard line.
In the city of Limassol, which is crowded with Russian residents, lines of 25 to 30 people snaked in front of every automated teller machine that still had cash. Many of Russia’s wealthiest citizens hold bank accounts in Cyprus. In Moscow, President Vladimir V. Putin discussed the Cyprus situation Thursday in a one-on-one meeting with the European Commission president, José Manuel Barroso, who was in Russia for an annual meeting between senior officials.
A delegation of Cypriot officials, led by the finance minister, Michaelis Sarris, also remained in Moscow to press their case for additional aid, but there were no reports of progress, and the officials stayed out of sight.
For months, Cyprus had been discussing the possibility of changing the terms of a €2.5 billion loan that Russia provided in late 2011, to lower the interest rate and defer the repayment deadline.
Prime Minister Dmitri A. Medvedev, in a meeting with European journalists, said that a number of Russian state-owned companies had bank accounts in Cyprus, and he expressed annoyance that those accounts were frozen, presumably interfering with some business operations.
Russian citizens and other Russian entities are estimated to have €23 billion or more in Cyprus banks. But the Russian government is also concerned about an even larger amount of money that typically flows through Cyprus, where many companies that operate in Russia maintain offshore affiliates.
Cypriot banks have frozen all accounts in a financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.Cypriot banks have frozen all accounts in a financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.
The authorities have ordered Cypriot banks to keep automated bank machines filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies who do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.The authorities have ordered Cypriot banks to keep automated bank machines filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies who do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.
The fallback was being cobbled together as Cyprus’s finance minister pressed his case in Moscow on Wednesday in hopes of securing additional aid from Russia. The talks ended inconclusively. The fallback plan was being cobbled together as Cyprus’s finance minister pressed his case in Moscow in hopes of securing additional aid from Russia. The talks ended inconclusively.
Mr. Dijsselbloem, the Eurogroup chairman, said Thursday that there were few signs that Russia would come forward with an alternative plan or loans enabling European lenders and the Cypriots to reduce their contribution to a bailout package. Jeroen Dijsselbloem, chairman of the euro zone finance ministers, said Thursday that there were few signs that Russia would come forward with an alternative plan or loans enabling European lenders and the Cypriots to reduce their contribution to a bailout package.
He added that Russian loans to Cyprus would only swell the country’s already unmanageable debt. That, turn, made it inevitable that Cyprus would have to impose a one-time levy on “investors” rather than on “savers.”He added that Russian loans to Cyprus would only swell the country’s already unmanageable debt. That, turn, made it inevitable that Cyprus would have to impose a one-time levy on “investors” rather than on “savers.”
Melissa Eddy in Berlin and James Kanter in Brussels contributed reporting. Melissa Eddy in Berlin, James Kanter in Brussels and David M. Herszenhorn in Moscow contributed reporting.