Cyprus approves capital controls
Cypriot lawmakers have approved capital controls and legislation to wind down banks as they scrambled to secure a bailout and avert a financial collapse.
- Published: 23/03/2013 at 08:16 AM
- Newspaper section: topstories
The parliament passed nine bills late Friday after a day locked in talks between Cypriot and international officials in Nicosia. Lawmakers may vote later on Saturday on what sort of levy to impose on bank deposits above 100,000 euros (US$130,000), four days after rejecting an initial proposal to tax all accounts. Banks have been shut all week and are due to reopen on Tuesday.
President Nicos Anastasiades is trying to end a week-long impasse that is starting to threaten the country’s membership in the euro. The European Central Bank has imposed a Monday deadline on Cyprus to come up with proposals that will satisfy international creditors or face the risk of losing access to all emergency funds.
European finance ministers will probably meet to discuss the latest Cypriot proposals on Sunday.
Cyprus has been thrust onto the international stage after an all-night summit of European finance ministers last week provoked outrage in Cyprus and abroad when it proposed levies on all bank depositors. While the Cypriot parliament rejected that plan, European leaders stuck to their message that it needs to come up with 5.8 billion euros to free up a 10 billion-euro bailout.
Even after passing the new laws, Anastasiades may still find himself short of the 5.8 billion euros required to satisfy EU leaders. Winding down Cyprus Popular Bank, the nation’s second-biggest bank, would only bring the bill down to 3.5 billion euros, said Averof Neofytou, deputy president of Anastasiades' ruling Disy party.
Cyprus Popular Bank depositors with more than 100,000 euros will face losses, he said.
"They will wait for many years before they see what percentage they will get back from their savings -- 30%, 40%, 50%, 60%, it will be seen,” Neofytou said during the debate in parliament. “At the same time this political decision to support this harsh law completely safeguards another 361,000 savers of a total of 371,000."
He did not say what could happen to larger depositors of other banks. Parliament may meet again today to discuss imposing a levy on deposits, he said.
One plan pushed by European finance officials could see Cyprus Popular Bank (CPB) and the Bank of Cyprus (BOCY), the country’s largest, split to create a so-called bad bank. Insured deposits -- below the European Union ceiling of 100,000 euros -- would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, four euro-region officials said.
Cyprus in June became the fifth euro-area nation to request a rescue. The move came after Greece’s debt restructuring, the largest in history, trashed the financial health of lenders including Bank of Cyprus and Cyprus Popular Bank.
Cyprus Popular, founded in 1901 as a small savings bank, operates in Cyprus, Greece, the United Kingdom, Ukraine, Russia, Romania, Serbia, Malta and China through 439 branches, servicing 1.35 million customers, according to information on its website.
The bank, which employs about 8,500 people, posted a net loss of 1.56 billion euros for the first nine months of 2012, after a net loss of 3.65 billion euros in 2011 following writedowns on Greek government bond holdings, goodwill related to its Greek business and making provisions for loan losses.
Cyprus's total bank assets swelled to 126.4 billion euros at the end of January, seven times the size of the 18 billion- euro economy, from 78 billion euros in 2007, data from the European Central Bank and the EU's statistics office show. Russian companies and individuals have an estimated $31 billion of wealth in Cyprus, according to Moody's.
At 17 billion euros, Cyprus's financial needs are almost equivalent to the country's entire economic output, a magnitude of bailout that has never been awarded before, Merkel told reporters on March 20. That means "the bank sector must contribute to the sustainability of Cypriot debt," she said.
Cypriot Finance Minister Michael Sarris, who met the same day in Moscow with Russian First Deputy Minister Igor Shuvalov and Finance Minister Anton Siluanov, said yesterday that Russia would offer no additional support beyond restructuring a 2.5 billion-euro loan granted in 2011.
Merkel told a closed-door meeting of legislators in Berlin yesterday that Cyprus must now act quickly, a party official said.
Cyprus is living "in an illusion," Michael Meister, deputy parliamentary leader of Merkel’s CDU, told BBC Radio 4's "Today" programme. "They have to restructure the whole economy, restructure the banking sector and until now I don't see the Cyprus people and politicians agreeing on this."
About the author
- Writer: Bloomberg News
- Position: News agency