Cyprus bailout talks go down to the wire as deadline looms

PUBLISHED : Sunday, 24 March, 2013, 2:54pm
UPDATED : Sunday, 24 March, 2013, 5:51pm

Cyprus President Nicos Anastasiades was on his way to Brussels on Sunday in a last-ditch push to save the crisis-hit island from bankruptcy if no deal is struck to bail it out ahead of a Monday deadline.

Government spokesman Christos Stylianides said Anastasiades left on special flight, adding: “The negotiations are at a very delicate stage. The situation is very difficult and the time limits are very tight.”

European Union economic chief Olli Rehn warned Nicosia an accord on Sunday was essential to save its economy, saying “there are only hard choices left.”

Rehn welcomed “progress” made towards meeting EU-IMF demands that Cyprus reform its financial sector and raise £5.8 billion (HK$58.5 billion) to unlock £10 billion (HK$100.8 billion) in desperately needed emergency funding by a Monday deadline.

Cyprus leaders face a make-or-break meeting of euro zone finance ministers later on Sunday in their last chance to forge an agreement.

“It is essential that an agreement is reached by the Eurogroup on Sunday night,” said Rehn, the EU economy and euro commissioner.

He acknowledged that Cypriot leaders faced hard choices to try to limit the damage from the blow to its bloated banking sector, after a firestorm of protest over EU plans to impose a special levy on bank deposits.

But Rehn added: “Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available. There are only hard choices left.”

German Finance Minister Wolfgang Schaeuble also warned that if Cyprus was to stay in the eurozone it had to meet the terms of the rescue package.

“The eurozone countries want to help Cyprus, but the rules must be respected, the aid must be relevant and the programme must tackle the problems at their root,” he said in comments published in Germany’s Welt am Sonntag.

Talks in Nicosia among political leaders went on until nearly midnight on Saturday to try to find a way to meet the EU-IMF conditions.

Media reports suggested Cypriot officials had made progress with EU and IMF representatives, having agreed a 20 per cent haircut on Bank of Cyprus and a 4.0 per cent levy on other banks.

Private channel Mega TV said the government had reached agreement on most elements of a deal, but the final stumbling block might not be settled before Sunday’s last-minute huddle between Anastasiades and EU ministers.

Parliament in Nicosia has already approved a painful series of banking reforms and there was reluctant consensus on other revenue-raising measures to put to the euro zone ministers.

A radical restructuring of the island’s second-largest lender Laiki (Popular Bank) will see all deposits over £100,000 (HK$1 million) put into a “bad bank” where they will be tied up for years and may never be fully recovered.

MPs passed that measure on Friday night.

Unfortunately, the events of recent days have led to a situation where there are … only hard choices left.
Olli Rehn, EU economic chief 

But negotiations stumbled on EU-IMF demands for a substantial levy on deposits above the same threshold in largest lender Bank of Cyprus to avoid it facing similar restructuring. It holds more than a third of all deposits.

Mega TV said the 20 percent haircut on Bank of Cyprus account-holders would be in the form of a bond or share swap in a bid to get the measure through parliament.

On Tuesday, MPs flatly rejected an earlier plan for a levy on all deposits.

Anastasiades has invited party leaders to accompany him to Brussels in a bid to persuade eurozone ministers there will be no repetition of that defeat.

Mega TV said the remaining sticking point was over whether Bank of Cyprus should absorb the “good bank” carved out of Laiki, or whether they should remain two separate lenders as the government wants.

Cyprus negotiators had been desperate to avoid Bank of Cyprus being subjected to the same bitter pill imposed on Laiki.

A threat to Bank of Cyprus’s pension fund sparked an angry march on parliament by bank staff on Saturday and a threat of industrial action.

“If you don’t secure our pension fund, we will go on strike from Tuesday” when branches are finally scheduled to reopen after a closure of more than a week, banking union chief Loizos Hadjicostis said.

The strike threat was a serious one for an economy reeling from the prolonged bank closure, imposed for fear of a run by panicked depositors, which has seen many businesses accept only cash transactions.

Overnight, vandals spray-painted the front of Anastasiades’ Nicosia party headquarters with slogans, including “Kleftes” – Greek for “thieves” – and ”Get out,” an AFP reporter said.