Cyprus became the latest euro zone domino to teeter in 2012 just when the worst of the crisis appeared to be over. In March 2013, a compromise rescue plan backed by euro zone finance ministers called for Cyprus to wind down one largely state-owned bank, Popular Bank. The raid on Popular Bank was intended to raise most of the 5.8 billion euros that Cyprus was required to raise as part of the bailout.
Cyprus president in desperate bid to prevent run on banks
President Nicos Anastasiades will on Monday attempt to persuade Cypriot lawmakers to back an EU bailout deal that slaps a levy on bank savings, amid fears of a run on accounts if he fails.
Anastasiades, in an address to the shell-shocked nation on Sunday night, said that rejecting the EU demands would have seen Cyprus exit the eurozone and face bankruptcy.
“I chose the least painful option, and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots,” Anastasiades said.
He also vowed to continue to try to persuade the eurogroup of nations which imposed the harsh conditions to “limit the impact on small depositors”.
As a condition for a desperately-needed 10-billion-euro (HK$101.5 billion) bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island’s banks.
Deposits of more than 100,000 euros (HK$1.01 million) will be hit with a 9.9 per cent charge, while under that threshold the levy drops to 6.75 per cent.
“The first choice (rejecting the EU’s terms) would have led to a disorderly default as a result of the ECB (European Central Bank) cutting emergency funding to maintain liquidity in the two largest banks,” Anastasiades said.
“The second choice (accepting the terms) was very difficult but controlling and managing the situation leading to economic stability of the economy.”
Cyprus bank customers have voiced dismay and anger that they alone of the five euro zone member countries forced to seek bailouts so far are expected to help foot the bill.
“Many countries have economic problems more than Cyprus. Why are they doing this only in Cyprus?” lamented dentist Andreas Hadgigeorghiou.
There was also anger that the president had signed up to the levy after months of assurances that it was a red line he would never cross.
“I feel betrayed,” a public sector employee who gave her name only as Elpida told AFP.
Anastasiades sought to calm bank depositors, who were seen lining up outside ATMs making whatever limited withdrawals of their savings they were allowed.
“I fully share the unhappiness caused by a difficult and painful decision. That’s why I continue to fight with the euro group to amend their decisions in the coming hours to limit the impact on small depositors,” the president said.
Anastasiades urged all political parties to ratify the terms of the EU deal when parliament meets on Monday.
Local media said he is struggling to secure even a simple majority for the terms of the bailout in the 56-member parliament in which his conservative DISY parliament holds just 20 seats.
Anastasiades needs to get the legislation ratifying the deal through parliament before banks reopen Tuesday, after a long three-day weekend, or face a run on accounts.
But local media reported that the scale of revolt against the agreement among MPs has thrown into disarray his efforts to do so over the weekend, and he may have to declare an additional bank holiday on Tuesday.
The president was scheduled to meet his cabinet at 9:30 am (1530 HKT) on Monday before briefing lawmakers later in the morning. Parliament was expected to vote on the bailout around 4:00 pm (2200 HKT).
The bank levy will hit everyone with money in Cyprus banks, from pensioners to Russian oligarchs.
Even the president of the European parliament, Martin Schulz, expressed concern about the hit being imposed on small depositors.
“The solution must be socially acceptable,” Schulz warned.
Despite the public statements of opposition, many Cypriots said they expected MPs would eventually be forced to approve the deal.
“I am not happy, but they have to sign,” said Irini Makrides, who owns a shoe shop chain.
Nicosia-based political analyst Hubert Faustmann said ultimately the MPs had little choice.
“Parliament will have to vote it through because the alternative is bankruptcy. They cannot amend it, as far as I know, it is a ‘yes’ or ‘no’ vote -- and a ‘no’ means bankruptcy.”