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Cyprus devises bailout plan

by JAMES KANTER New York Times News Service on March 24, 2013 2:00 AM

NICOSIA, Cyprus — With Cyprus facing a Monday deadline to avoid a banking collapse, the government and its international negotiators devised a plan late Saturday to seize a portion of savers’ deposits above 100,000 euros at all banks in the country, in a bid to raise money for an urgently needed bailout.

A one-time levy of 20 percent would be placed on uninsured deposits at one of the nation’s biggest banks, the Bank of Cyprus, to help raise 5.8 billion euros demanded by the lenders to secure a 10 billion euro, or $12.9 billion, lifeline.

A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.

An agreement was still far off, though, as Cyprus’ lenders left for the night without reaching an accord. The proposal still requires approval by the Cypriot Parliament and by the European Central Bank, International Monetary Fund and European Union leaders. Finance ministers from the 17 eurozone countries have scheduled an emergency meeting at 6 p.m. today in Brussels.

Under the plan, savings under 100,000 euros would not be touched — a rollback after a controversial plan last week to tax insured deposits was rejected by Cyprus’ Parliament, amid outrage among savers and widespread concern that a precedent had been set for governments anywhere to tap insured bank savings in times of a national emergency.

Cypriot officials on Saturday also pulled back on a plan to raise billions of additional euros by nationalizing state-owned pension funds, after Germany, whose political and financial clout dominates eurozone policy, had indicated that it opposes the move.

Cyprus’ president, Nicos Anastasiades, was meeting Saturday night with political parties to explain the deal. He was scheduled to fly to Brussels today.

All parties were working against a deadline imposed by the European Central Bank, which has said it will cut off crucial short-term financing to Cyprus’ teetering commercial banks on Monday if a bailout deal is not reached by then.

A cutoff of central bank financing and the absence of a bailout agreement could cause Cypriot banks to collapse.

It could also lead to a disorderly default on the government’s debt, with unpredictable repercussions for the euro monetary union, despite the country’s tiny economy.

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