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Bailout deadline looming for Cyprus

by LIZ ALDERMAN New York Times News Service on March 23, 2013 10:20 AM

NICOSIA, Cyprus — Lawmakers took steps late Friday to revise a formula for obtaining a bailout of Cyprus’ banks but faced strong signals that the plan would not pass muster with international lenders.

The Parliament put off until later this weekend a vote on a crucial new proposal that would confiscate 22 percent to 25 percent of uninsured deposits above 100,000 euros through a new tax on account holders in one of the nation’s most troubled banks.

So with a deadline imposed by the European Central Bank looming on Monday, it appeared there was still no immediate path to a lifeline of $13 billion that Cyprus needs to keep its banks from collapsing.

Cyprus’ so-called troika of lenders — the International Monetary Fund, the European Commission and the European Central Bank — must still approve any plan.

President Nicos Anastasiades was scheduled to fly to Brussels today to meet with European Union leaders, a spokesman said.

Monday is a national holiday in Cyprus, but banks are supposed to reopen on Tuesday for the first time in more than a week. There is widespread fear of a classic bank run.

One of the provisions Parliament approved Friday would impose new restrictions on withdrawing cash or moving money out of the country when the banks reopen. These new capital controls would prohibit or restrict check cashing and bar “premature” account closings or any other transaction the authorities deemed unwarranted.

Lawmakers also voted to restructure the nation’s largest and most troubled bank, Laiki Bank, by splitting off its troubled assets into a so-called bad bank. Accounts with no problem would be transferred to the nation’s largest financial institution, the Bank of Cyprus. Lawmakers also voted to require that any bank on the verge of bankruptcy be split apart in the same way.

Still to be voted on is the measure to impose a tax of 22 percent to 25 percent on uninsured deposits at the Bank of Cyprus. That proposal was made after lawmakers rejected a plan earlier in the week to tax insured deposits to help raise the amount needed to secure the bailout.

The decision to tax uninsured deposits came after Cyprus proposed nationalizing the pension funds of state-owned Cypriot companies. Lawmakers approved that measure Friday, but the move was denounced in Germany, whose political and financial influence in the eurozone tends to dictate policy.

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