The president of Cyprus is on his way to Brussels this morning in a bid to persuade Eurozone finance chiefs to accept a last-minute deal to avoid financial meltdown in the island.Nicos Anastasiades was due in the Belgian capital on Saturday after a sitting of Cypriot parliament last night approved a series of bills aimed at securing the country a European Union bail-out.
The measures include a bill to restructure ailing Cypriot banks, and restrictions on financial transactions to stop a cash-flight from the country in the wake of last week’s panic. There will also be a revenue-raising tax of less than 1 per cent on all bank deposits – a move seen as fairer than the levy of 6.75 per cent originally proposed on deposits between 20-100,000 euros, which was rejected by the Cypriot parliament last Tuesday.
More measures were due to be debated by the Cypriot parliament on Saturday, aimed overall at raising the 5.8 billion euros that the country needs in order to qualify for 10 billion euro rescue package. This morning it was announced that the parliament is not expected to convene again until after the Eurogroup meeting on Sunday.
The moves came after the European Central Bank warned Cyprus that it would pull the plug on emergency funding to the country’s banking sector by Tuesday if it did not come up with an alternative plan to the original levy proposals. That would have sparked the likely collapse of the country’s banks, and an imminent exit from the Eurozone.
It remains to be seen, however, whether Eurozone finance chiefs will deem Mr Anastasiades’s proposals up to scratch.
The Dutch head of the euro zone finance ministers’ group, Jeroen Dijsselbloem, said the group wanted to keep Cyprus in the currency union.
But when asked, he did not rule out an exit.
“All kinds of scenarios are possible,” he said. “The scenarios we’re focusing on are to come to a joint solution in which Cyprus is saved but in which the banking sector continues in a smaller but healthier form.”
Cypriot MPs, meanwhile, said that the German Chancellor, Angela Merkel, had told them that Cyprus would now have to drastically reduce the size of its banking sector, effectively ending its lucrative years as an international financial services centre.
On Friday night, the parliament adopted a restructuring bill that would pave the way for the government to split its failing banks into “good” and “bad” sections. The measure is likely to target the Bank of Cyprus and the Cyprus Popular Bank, also known as Laiki.
The tax of less than one per cent on all bank deposits was described as “the least worst option” by Averof Neophytou, deputy head of the governing DISY party.
“We owe an apology to the Cypriot people because we all share in the responsibility of bringing this place to this state,” he said.
It also got grudging acceptance from ordinary Cypriots, most of whom are now desperate for financial security after a week which many feared they could lose their savings altogether.
“If we have Europe’s support so our banks won’t collapse, I wouldn’t have a problem with a deposit tax,” said pensioner Demetrakis Papanicolaou, 64.
Negotiations are still continuing though, over what levy might be imposed on wealthier savers with more than 100,000 euros.
The Bank of Cyprus said it backed the idea of confiscating some percentage of all bank deposits over 100,000 euros because of a simple lack of alternatives.
It warned Cypriots that “a potential collapse of the banking sector could lead to the total loss of all deposits above 100,000 euros and the immediate sale of all collateral accompanying non-performing loans.”
With additional reporting by Reuters and Associated Press
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