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| As Deadline Nears, Cyprus Scrambles to Devise a Bailout | As Deadline Nears, Cyprus Scrambles to Devise a Bailout |
| (about 1 hour later) | |
| BRUSSELS — Eight days after hashing out a bank bailout deal that the financial world reviled and the Cypriot Parliament unanimously rejected, euro zone finance ministers and Cyprus officials planned to meet here on Sunday night. | |
| They face a deadline of Monday, when the European Central Bank has said that it will cut off the financing that is keeping Cyprus’s teetering banks from collapsing. | They face a deadline of Monday, when the European Central Bank has said that it will cut off the financing that is keeping Cyprus’s teetering banks from collapsing. |
| The Cypriot president, Nicos Anastasiades, flew to Brussels on Sunday after mapping out a tentative outline of a deal late Saturday with representatives of the troika of negotiators involved in the bailout: the European Central Bank, the European Commission and the International Monetary Fund. | The Cypriot president, Nicos Anastasiades, flew to Brussels on Sunday after mapping out a tentative outline of a deal late Saturday with representatives of the troika of negotiators involved in the bailout: the European Central Bank, the European Commission and the International Monetary Fund. |
| His first order of business was a meeting with Mario Draghi, the president of the central bank; Christine Lagarde, the managing director of the I.M.F.; and José Manuel Barroso, the president of the commission. Herman Van Rompuy, the president of the European Council, which represents European Union leaders, presided over that meeting, which dragged into the early evening. | His first order of business was a meeting with Mario Draghi, the president of the central bank; Christine Lagarde, the managing director of the I.M.F.; and José Manuel Barroso, the president of the commission. Herman Van Rompuy, the president of the European Council, which represents European Union leaders, presided over that meeting, which dragged into the early evening. |
| The 17 finance ministers of the countries using the euro, whose taxpayers would ultimately provide the 10 billion euros, or $12.9 billion, that Cyprus is seeking, were forced to delay their meeting. | |
| Mr. Anastasiades had briefed Cypriot political leaders on the outline, which is said to call for imposing a hefty one-time tax on bank deposits above 100,000 euros, or about $130,000. Whether that would pass Parliament, whose approval is needed, remains to be seen. | Mr. Anastasiades had briefed Cypriot political leaders on the outline, which is said to call for imposing a hefty one-time tax on bank deposits above 100,000 euros, or about $130,000. Whether that would pass Parliament, whose approval is needed, remains to be seen. |
| “The situation is very difficult,” the president said in a statement early Sunday. Later in the day, the nation’s two biggest banks added to the public’s anxiety by limiting bank machine withdrawals to 120 euros. | “The situation is very difficult,” the president said in a statement early Sunday. Later in the day, the nation’s two biggest banks added to the public’s anxiety by limiting bank machine withdrawals to 120 euros. |
| The finance ministers drove a hard bargain last weekend, demanding that Cyprus come up with 5.8 billion euros of its own money — about $7.5 billion — in order to receive the bailout. | The finance ministers drove a hard bargain last weekend, demanding that Cyprus come up with 5.8 billion euros of its own money — about $7.5 billion — in order to receive the bailout. |
| The source of that 5.8 billion euros is the sticking point. As announced a week ago, the money would have been raised by levying a one-time tax on all depositors with money in Cypriot banks — a large portion of which is held by wealthy foreigners, many of them Russians. | The source of that 5.8 billion euros is the sticking point. As announced a week ago, the money would have been raised by levying a one-time tax on all depositors with money in Cypriot banks — a large portion of which is held by wealthy foreigners, many of them Russians. |
| But that plan was heavily criticized because it would have hit even small depositors and seemed to violate the trust implicit in the deposit-guarantee system used throughout the euro zone, in which accounts of less than 100,000 euros ($123,000) are supposed to be insured by the government. | But that plan was heavily criticized because it would have hit even small depositors and seemed to violate the trust implicit in the deposit-guarantee system used throughout the euro zone, in which accounts of less than 100,000 euros ($123,000) are supposed to be insured by the government. |
| The fear of an immediate run on Cypriot banks has kept them closed, although they are scheduled to reopen on Tuesday. Customers have stood in long snaking lines throughout the week to get access. | The fear of an immediate run on Cypriot banks has kept them closed, although they are scheduled to reopen on Tuesday. Customers have stood in long snaking lines throughout the week to get access. |
| Still unclear was whether the banks would reopen if the European Central Bank carries out its threat to cut off short-term financing unless a bailout deal is reached. | Still unclear was whether the banks would reopen if the European Central Bank carries out its threat to cut off short-term financing unless a bailout deal is reached. |
| The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole. | The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole. |
| A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus. | A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus. |
| Under the plan, savings under 100,000 euros would not be touched — a significant difference from the original plan, which not only enraged Cypriot citizens but ignited fear that precedent had been set for euro zone governments to tap insured bank savings in times of a national emergency. | Under the plan, savings under 100,000 euros would not be touched — a significant difference from the original plan, which not only enraged Cypriot citizens but ignited fear that precedent had been set for euro zone governments to tap insured bank savings in times of a national emergency. |
| Cypriot officials have also backed off a proposal that would have sought to raise billions of additional euros by nationalizing state-owned pension funds. Germany, whose political and financial clout dominates euro zone policy, had indicated it opposes the move. | Cypriot officials have also backed off a proposal that would have sought to raise billions of additional euros by nationalizing state-owned pension funds. Germany, whose political and financial clout dominates euro zone policy, had indicated it opposes the move. |
| The late negotiations are the culmination of months of wrangling over how to address Cyprus’s financial troubles. Last June, Cyprus’s banks, flush with deposits from wealthy foreigners seeking high interest rates, took steep losses on their large holdings of Greek bonds when that nation was given its own bailout and bondholders were forced to take losses. Coupled with a decline in real estate values, the Cbanking troubles forced Cypriot leaders to formally ask for a bailout last summer. | |
| The late negotiations are the culmination of months of wrangling over how to address Cyprus’s financial troubles. Last June, Cyprus’s banks, flush with deposits from wealthy foreigners seeking high interest rates, took steep losses on their large holdings of Greek bonds when that nation was given its own bailout. Coupled with a decline in real estate values, Cyprus’s banking troubles forced Cypriot leaders to formally ask for a bailout last summer. | |
| President Anastasiades, a lawyer by profession and a center-right politician on the same side of European Union politics as Chancellor Angela Merkel of Germany, was voted into office in February on the promise of reaching an effective bailout. | President Anastasiades, a lawyer by profession and a center-right politician on the same side of European Union politics as Chancellor Angela Merkel of Germany, was voted into office in February on the promise of reaching an effective bailout. |
| According to those involved in the first round of negotiations a week ago, Mr. Anastasiades pushed for the largest accounts to be subject to a tax of less than 10 percent — a formula that meant the tax would have to hit all depositors in order to raise enough money. The thinking was that he did not want to be seen as targeting the wealthy foreigners who have long considered Cyprus a bank-friendly tax haven. That many of those foreigners were Russian was not lost on political observers. | According to those involved in the first round of negotiations a week ago, Mr. Anastasiades pushed for the largest accounts to be subject to a tax of less than 10 percent — a formula that meant the tax would have to hit all depositors in order to raise enough money. The thinking was that he did not want to be seen as targeting the wealthy foreigners who have long considered Cyprus a bank-friendly tax haven. That many of those foreigners were Russian was not lost on political observers. |
| In the last week, Cyprus sought to work out some sort of side financial-support deal with Moscow, but those talks went nowhere. Russia was said to be trying to make any new support contingent on access to Cyprus’s potentially rich offshore natural gas deposits. | In the last week, Cyprus sought to work out some sort of side financial-support deal with Moscow, but those talks went nowhere. Russia was said to be trying to make any new support contingent on access to Cyprus’s potentially rich offshore natural gas deposits. |
| The natural gas discussions provoked another geopolitically fragile aspect of the Cyprus crisis: the fact that the northern part of the island has been controlled by Turkey since a Greek-backed coup in Cyprus in 1974. On Sunday, Turkey’s ministry of foreign affairs issued a statement warning Cyprus not to use the natural gas as collateral. Doing so, it said, would ignore “the inherent rights of the Turkish Cypriots who are co-owners of the Island.” | The natural gas discussions provoked another geopolitically fragile aspect of the Cyprus crisis: the fact that the northern part of the island has been controlled by Turkey since a Greek-backed coup in Cyprus in 1974. On Sunday, Turkey’s ministry of foreign affairs issued a statement warning Cyprus not to use the natural gas as collateral. Doing so, it said, would ignore “the inherent rights of the Turkish Cypriots who are co-owners of the Island.” |
| With Turkey bristling and Russia seemingly not a fallback option — and with the Cypriot Parliament intent on protecting small bank account holders — Mr. Anastasiades’ best hope now might be the revamped proposal, and the newly sharpened pencil, that he took to Brussels. | With Turkey bristling and Russia seemingly not a fallback option — and with the Cypriot Parliament intent on protecting small bank account holders — Mr. Anastasiades’ best hope now might be the revamped proposal, and the newly sharpened pencil, that he took to Brussels. |
James Kanter reported from Brussels and Liz Alderman from Nicosia, Cyprus. Andreas Riris contributed reporting from Nicosia. | James Kanter reported from Brussels and Liz Alderman from Nicosia, Cyprus. Andreas Riris contributed reporting from Nicosia. |