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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 2 hours later)
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. NICOSIA, Cyprus — As the European Central Bank threatened to shut off crucial financing for banks in Cyprus without a rapid accord, members of Parliament put off a vote Thursday on yet another revamped formula for securing an international bailout. The vote was rescheduled for Friday.
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. The mood in the streets, meanwhile, turned increasingly dark. Police officers clashed with protesters as about 200 demonstrators gathered outside Parliament.
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. Those involved in the scuffles included employees of Cyprus Popular Bank, the country’s second largest bank, who 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 bailout measure was not passed by Parliament. 
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. After the government said banks would remain closed until Tuesday to allow time for a bailout deal to be reached, residents flocked to cash machines in growing numbers. Lines of two or three dozen people or more, withdrawing as much money as possible, were common sights.
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, With anger growing in this country of 1.1 million people, President Nicos Anastasiades presented Parliament on Thursday with a plan that scrapped a controversial tax on bank deposits. Experts warned, however, that the deposit-tax plan might need to be revisited unless the government found other means to reach the target of 5.8 billion euros, or $7.5 billion, needed to satisfy international negotiators,
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.” The central bank said the new package included “consolidation measures” to enable Cyprus Popular Bank, also known as Laiki Bank, to continue operating. As the country’s most troubled lender, it would be restructured by placing underperforming loans and toxic assets into a so-called bad bank and transferring healthy assets to the Bank of Cyprus, the largest financial institution.
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. By effectively shutting down one of the banks needing support, the government would lower the large tab for supporting the banking system.
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. But the central bank warned that if Parliament failed to pass the measure, “Laiki will default immediately, causing major consequences to its employees and its clients.”
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. Lawmakers will also vote on restrictions on taking cash out of banks and out of the country, known as capital controls, when the banks reopen. The bill would limit cash withdrawals, prohibit or restrict check cashing, and bar “premature” account closures and “any other transaction” that authorities deem unwarranted.
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. 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 banks to continue to receive the low-interest loans essential to keeping them afloat.
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. After a hastily held evening meeting to assess the Cyprus situation, the Eurogroup club of 17 euro finance ministers issued a statement declaring themselves “conditionally satisfied” with most of the new proposal, which the so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — is to assess Friday after the Parliament vote.
“We now need to move into top gear and work intensively with the Cypriot government and our troika partners to design a viable alternative solution that can be acceptable to all euro-area member states,” Simon O’Connor, a spokesman for the European commissioner for economic and monetary affairs, Olli Rehn, said in a statement.
The plan sent to Parliament on Thursday would nationalize pension funds from state-run companies and conduct an emergency bond sale to help raise the 5.8 billion euros the indebted country needs to secure a 10-billion-euro bailout. Gone was any reference to a deposit tax, which the Parliament had roundly rejected in a vote two nights earlier.
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 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.
“Time is up — we want our cash,” said Maria Melitou, an accountant.“Time is up — we want our cash,” said Maria Melitou, an accountant.
“Our friends in Europe brought us to this point,” she added. “We expected more.”“Our friends in Europe brought us to this point,” she added. “We expected more.”
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.”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.”
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. 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 euro bailout.
“It’s like you’re telling us to just leave our money in our mattress,” she said. “What is happening to European solidarity?”“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 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 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 — one reason that euro zone finance ministers have taken such a hard line.
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.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.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. For months, Cyprus had been discussing the possibility of changing the terms of a loan of 2.5 billion euros 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.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. Russian citizens and other Russian entities are estimated to have 23 billion euros 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. 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 that 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 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.
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.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, in turn, made it inevitable that Cyprus would have to impose a one-time levy on “investors” rather than on “savers.”
Melissa Eddy in Berlin, James Kanter in Brussels and David M. Herszenhorn in Moscow contributed reporting.
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Melissa Eddy in Berlin, James Kanter in Brussels, David M. Herszenhorn in Moscow and Andreas Riris in Nicosia contributed reporting.