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 approves first EU bailout measures as clock ticks
The Cyprus parliament finally gave its approval early on Saturday to the first two of eight measures hammered out by the government in a desperate bid to rescue an EU bailout ahead of a Monday deadline.
But with the clock ticking down to a crunch Sunday evening meeting with euro zone finance ministers, more contentious issues remained to be debated including a tax of up to 15 per cent on bank deposits of 100,000 euros (US$129,000) and more.
MPs flatly rejected the levy in slightly different form last Tuesday.
Three days later, the deputies voted in favour of a national solidarity fund to be set up through the nationalisation of public and private sector pensions.
They also approved capital controls to prevent a run on the island’s troubled banks when they are finally due to open on Tuesday after a more than week-long closure.
The votes followed prolonged talks between party leaders on the package aimed at raising 5.8 billion euros (US$7.47 billion) to unlock loans worth 10 billion euros or face being denied European Central Bank (ECB) emergency funds in a move that would collapse its banks and devour its economy.
The emergency session, which did not begin until 10.30pm local time, came after restive crowds, mostly bank employees anxious that their employers not be sacrificed in the deal, demonstrated outside parliament through the day.
EU sources have said the bloc is ready to eject Cyprus from the euro zone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.
Long-time ally Russia too cold-shouldered its offer of investment proposals, leaving the country increasingly isolated even as German Chancellor Angela Merkel warned that the patience of its European partners was wearing thin.
State television said that Cyprus in its new package to the troika – the EU, ECB and International Monetary Fund – would include a “haircut” of up to 15 per cent on bank deposits above 100,000 euros.
Plans for a tax of 9.9 per cent tax on amounts over 100,000 euros were knocked back by lawmakers when an initial plan was put to the vote, but with other attempts to secure funding proving fruitless, officials said the tax option was back on.
Ahead of Friday’s session, President Nicos Anastasiades took to his Twitter account to send out a distress signal.
“The House of Representatives will soon be called upon to make difficult decisions. There will be painful aspects, but the country must be saved,” the president wrote.
Despite the ‘haircut” option being drummed out of court by MPs on Tuesday, the mood has swung as the deadline looms ever closer and banks remain in lockdown, threatening to bring bring businesses to their knees.
Cyprus’s chamber of commerce and employers’ federation joined its major banks in calling on MPs to reconsider their opposition to the tax.
Some among a crowd of 200 protesters outside parliament, mostly employees of Laiki, or Cyprus Popular Bank, who face losing their jobs, also demanded a change of heart.
“The right thing to do was to accept the haircut the way it was suggested then,” said bank worker Andreas Chrysafis.
Others however were strident in their opposition to the measure, with a group of about 30 hooded youths burning a European flag next to the parliament building in front of police barricades as they chanted, “The haircut is robbery.”
Euro zone finance ministers will meet in Brussels in a last-ditch bid to find a solution, three separate sources said.
“It’ll be physical,” said one source, and “start at 5:00 pm (1600 GMT) on Sunday,” said a second, with the third confirming later that “Sunday is on. It’s definite.”
As the crisis dragged on, European Union leaders announced the indefinite postponement of a key summit with Japan intended to launch crucial free trade negotiations next week.
Ratings giant Moody’s downgraded the credit-worthiness of all three main Cyprus three banks, citing expectations depositors would suffer losses, that capital controls would be imposed and uncertainty regarding their recapitalisation plans.
Cyprus hopes of an economic lifeline from Russia proved to be illusory, and Finance Minister Michalis Sarris left Moscow on Friday after two days of talks without clinching an agreement.
Russian officials said two major state-owned energy firms had turned down deals proposed by Sarris to fill the 5.8-billion-euro shortfall left by the EU-IMF bailout offer.
“Our investors examined this issue and showed no interest,” Russian news agencies quoted Finance Minister Anton Siluanov as saying.
But Prime Minister Dmitry Medvedev said later that Moscow “has not closed the door” on possible future assistance.
Greece’s third biggest bank, Piraeus Bank, is to acquire the Greek subsidiaries of the Bank of Cyprus and the Popular Bank to ensure the stability of their operations in Greece, a banking source said.
With the absorption, the subsidiaries become Greek banks and eligible for recapitalisation funds made available by the second bailout to Greece, rather than requiring Cyprus bailout money.