Cyprus president says depositors had to pay to avoid bankruptcy
NICOSIA | Sat Mar 16, 2013 3:38pm EDT
(Reuters) – Cypriot President Nicos Anastasiades said on Saturday a levy on bank depositors was a painful decision he had to make in order to obtain financial aid, or else the island’s economy would have gone bankrupt.
Anastasiades, elected three weeks ago with a pledge to negotiate a swift bailout, said refusal to agree to terms would have led to the collapse of the island’s two largest banks.
The president said he would make a state address on Sunday, when the island’s parliament was scheduled to meet in an emergency session to decide whether to approve the measure.
The eastern Mediterranean nation becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial aid.
But in a radical departure from previous aid packages – and one which triggered fury across the island – euro zone finance ministers forced Cyprus’s savers to forfeit up to 10 percent of their deposits to raise almost 6 billion euros.
“On Tuesday … we would either chose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” Anastasiades said in a written statement.
Had Cyprus chosen the “catastrophic scenario”, he said, from Tuesday one of the two distressed banks would have ceased to operate since the European Central Bank had already decided to terminate provision of emergency liquidity assistance (ELA).
“The second bank would suspend its work, and neither could avoid collapse,” he said.
Although he did not name the banks, he was referring to Cyprus Popular Bank, the recipient of the ELA facility for months, and Bank of Cyprus, the island’s largest bank.
If the banks collapsed, he said, the state would be obliged to compensate depositors with a bill potentially reaching 30 billion euros, which the state would be unable to pay.
Thousands of Cypriots converged on automatic teller machines on Saturday to withdraw cash, leaving many inoperative by mid-afternoon. Co-operative credit societies, normally open for business on Saturdays, were forced to close to prevent a run on deposits.
(Reporting by Michele Kambas; Editing by Jason Webb)
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Cyprus’ savers bear brunt of unprecedented bailout
By Annika Breidthardt and Robin Emmott and Michele Kambas
BRUSSELS/NICOSIA | Sat Mar 16, 2013 7:52pm EDT
(Reuters) – The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risk of a wider run on savings.
The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.
In a radical departure from previous aid packages – and one that gave rise to incredulity and anger across the country – euro zone finance ministers forced Cyprus’ savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.
Parliament was due to meet on Sunday to vote on the measure, and approval was far from assured.
The decision prompted a run on cashpoints, most of which were depleted by mid afternoon, and co-operative credit societies closed to prevent angry savers withdrawing deposits.
Almost half Cyprus’s bank depositors are believed to be non-resident Russians, but most queuing on Saturday at automatic teller machines appeared to be Cypriots.
President Nicos Anastasiades, elected three weeks ago with a pledge to negotiate a swift bailout, said refusal to agree to terms would have led to the collapse of the two largest banks.
“On Tuesday … We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” Anastasiades said in written statement.
In several statements since his election, he had previously categorically ruled out a deposit haircut.
“My initial reaction is one of shock,” said Nicholas Papadopoulos, head of parliament’s financial affairs committee. “This decision is much worse than what we expected and contrary to what the government was assuring us, right up until last night,” he told Reuters, without saying whether he would back the measure or whether he thought it would pass.
Papadopoulos is vice-chairman of the Democratic Party, a partner in Cyprus’s centre-right ruling coalition and whose support in parliament will be crucial to pass any haircut.
Parliament was expected to convene from 1600 local (1400 GMT) on Sunday to discuss the emergency legislation. Without parliamentary approval, a haircut cannot take place.
‘THEFT, PURE AND SIMPLE’
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Analysis: Cyprus bank levy risks dangerous euro zone precedent
By Mike Peacock
LONDON | Sun Mar 17, 2013 12:55pm EDT
(Reuters) – A hit imposed on Cypriot bank depositors by the euro zone has shocked and alarmed politicians and bankers who fear the currency bloc has set a precedent that will unnerve investors and citizens alike.
After all-night Friday talks, euro finance ministers agreed a 10 billion euro ($13 billion) bailout for the stricken Mediterranean island and said since so much of its debt was rooted in its banks, that sector would have to bear a large part of the burden.
In a radical departure from previous aid packages – and one that gave rise to incredulity and anger across Cyprus – the ministers are forcing the nation’s savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.
The European Central Bank’s pledge to buy euro zone government bonds in unlimited amounts if needed has calmed the beleaguered currency bloc for the past five months. But if investors fear the Cypriot template could be repeated in any future rescues, that calm could be shattered.
Without a bailout, Cyprus would default, which could unravel the investor confidence fostered by the ECB.
Politicians, bankers and analysts said the levy could undermine banks in other euro zone countries, even though the ministers insisted it was a one-off and Cyprus represents just 0.2 percent of euro zone economic output.
“The unprecedented move is an extreme measure, and in our view it will spread some panic across the EMU periphery, and we cannot rule out some capital outflows,” said Annalisa Piazza at Newedge Strategy.
“In the short run we expect some effects on periphery’s (bond yield) spreads and some weakening of the euro cannot be ruled out,” Piazza said.
The decision sent Cypriots scurrying to the cash points, most of which were emptied within hours. Most have been unable to access their bank accounts since Saturday morning, a move unlikely to engender calm.
Euro zone policymakers made a point of saying they would monitor any signs of money moving out of Cyprus but did not say how they might react in the event.
“For us, Cyprus is systemically relevant. Despite the small size of the economy, disorderly developments in Cyprus could undermine the important progress made in 2012 in stabilizing the euro zone,” ECB policymaker Joerg Asmussen said after the Eurogroup meeting concluded before dawn on Saturday.
A Cypriot bank holiday on Monday will limit any immediate reaction. The deposit levy – set at 9.9 percent on bank deposits exceeding 100,000 euros and 6.7 percent on anything below that – will be imposed on Tuesday, if voted through in parliament.
That is not certain to happen, but fear of the alternative – probable default – will focus minds.
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Our troops ‘safe’ from Cyprus bank raid
TROOPS whose savings are set to be ransacked in a European Union bank raid will get full compensation from the Government, George Osborne said yesterday.
Published: Mon, March 18, 2013
Cyprus is in financial turmoilThe Chancellor announced that troops and UK government officials in Cyprus will get compensation. But most expats will get nothing.
Mr Osborne said on the BBC’s Andrew Marr Show: “For people serving in our military and our government out in Cyprus, we are going to compensate anyone affected by this bank tax.”
Treasury officials estimate that around 3,000 UK military personnel and 150 civil servants live in Cyprus.
The Chancellor has moved quickly to ease the fears of BritonsFor people serving in our military and our government out in Cyprus, we are going to compensate anyone affected by this bank tax.
Chancellor George Osborne
Sue Hall, 54, a British businesswoman living on the island, feared her firm could lose around £3,500.
She said: “It is outrageous. This is down to the EU, they are picking on Cyprus because it’s a small country.”
Cypriot President Nicos Anastasiades speaking to the people of Cyprus in a televised addressDennis Wheatley, 78, a former postman from Coventry, pleaded with the Prime Minister to help pensioners. He says the tax will cost him around £1,300. “I came here because I wanted a wonderful life in retirement,” he said. “David Cameron should be making sure pensioners are looked after.”
Michael and Jennifer Garbett, from Castleford, West Yorkshire, said it made them question why they are living in Cyprus. Mr Garbett, 68, a retired publican, said: “We will be stung. I reckon it could result in lots of people going back home.”
Panic was spreading yesterday as savers queued at cash machines. One customer parked his tractor outside a bank in Limassol in frustration.
Cypriot bank officials said depositors could access all their cash – except the amount due in the levy.
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Putin Blasts Cyprus Levy on Bank Deposits as ‘Unfair’
Putin Blasts Cyprus Levy on Bank Deposits as ‘Unfair’
Originally posted at 13:57.
MOSCOW, March 18 (RIA Novosti) – Russian President Vladimir Putin believes the Cypriot government’s plans to impose a one-off levy on all bank deposits as part of a bailout deal to get much-needed loans from international creditors would be “unfair, unprofessional and dangerous,” Kremlin spokesman Dmitry Peskov said Monday.
Putin held a meeting Monday with administration staff and economic aides to discuss economic developments in the eurozone, Peskov said.
“In assessing a possible decision to impose an additional tax on bank deposits in Cyprus, Putin said this decision, if made, would be unfair, unprofessional and dangerous,” Peskov quoted Putin as saying.
The European Union and the IMF agreed on Saturday to bail out Cyprus’ debt-laden economy and grant the island nation a loan worth 10 billion euros ($13 billion) in return for the government’s obligation to tax all deposits kept at Cypriot banks.
Under the terms of the bailout deal, Cyprus will have to impose a levy of 6.75 percent on deposits of less than 100,000 euros and 9.9 percent on deposits with greater amounts. Cypriots reacted with shock and rushed to cash machines to withdraw their savings, but many machines refused to pay out.
Cypriot President Nicos Anastasiades said he had to choose between the “catastrophic scenario of disorderly bankruptcy and the scenario of a painful but controlled management of the crisis.”
The bailout plan has yet to be approved by Cyprus’ parliament, with the vote on the bank deposit levy scheduled for Tuesday.
Russian banks are heavily exposed to Cyprus risk as they had around $12 billion on deposit with Cypriot banks at the end of last year, with Russian corporate deposits accounting for another $19 billion, according to estimates by Moody’s international rating agency.
Russian Prime Minister Dmitry Medvedev echoed Putin’s comments on the Cyprus bailout deal, comparing the proposed tax on bank deposits to “the confiscation of other people’s money.”
“Quite strange and controversial decisions [are] being made by some EU member states. I mean Cyprus. Frankly speaking, this looks like the confiscation of other people’s money,” Medvedev said, speaking at a meeting of the supervisory board of national development bank Vnesheconombank.
He added that Russia may have to reconsider its relationship with Cyprus if the island nation introduces the controversial tax on bank deposits, but did not clarify what specifically he had in mind.
Updated with Medvedev’s comments and Cyprus parliament’s decision to postpone voting until Tuesday.
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