March 23, 2013

Cyprus will present plan to qualify for bailout

If the European Central Bank stops emergency funding, Cypriot banks will collapse on Tuesday.

By MENELAOS HADJICOSTIS The Associated Press

NICOSIA, Cyprus - Cypriot lawmakers were finalizing Friday a new plan they hope will raise enough money to qualify the country for a bailout package and help it avoid financial ruin next week.

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Small bondholders, who say they suffered major losses during Greece’s massive public debt write-off last year, protest Friday outside Greece’s Parliament in Athens.

The Associated Press

Cyprus' president, Nicos Anastasiades, will travel to Brussels on Saturday to present the plan to the country's prospective creditors, its fellow eurozone countries and the International Monetary Fund. There has been no indication that they will accept it.

The package of nine laws was expected to be voted on in Parliament on Friday night, three days after lawmakers decisively rejected a plan that would have seized up to 10 percent of people's bank deposits.

Cyprus has been told to raise 5.8 billion euros ($7.5 billion) to qualify for 10 billion euros ($12.9 billion) in rescue loans from the eurozone and the IMF.

The country faces a pressing Monday deadline, when the European Central Bank has said will stop providing emergency funding to the country's banks it a new plan is not in place. Without the ECB's support, Cypriot banks would collapse Tuesday, pushing the country toward bankruptcy and a potential exit from the 17-country euro currency union.

But eurozone officials said they had still not seen all the details and would have to discuss whatever final plan Cyprus presents.

Government spokesman Christos Stylianides said there had been "consultations all day" with representatives of the IMF, European Central Bank and European Commission -- collectively known as the troika -- who monitor and vet adherence to bailout conditions.

Averof Neophytou, the deputy head of the governing DISY party, said "significant progress" had been achieved Friday after hours of haggling over a series of draft laws.

The three main bills include restructuring the country's second-largest and most troubled bank, Laiki, and restricting some financial transactions once banks, which have been closed since Saturday, reopen on Tuesday.

The restructuring of Laiki and the sale of the toxic-laden Greek branches of Cypriot banks is expected to cut the amount the country needs to raise to about 3 billion euros instead of 5.8, Neophytou said.

Another law would set up a "solidarity fund" which will be used to raise money through as yet undetermined contributions and investments.

Despite Tuesday's rejection of the deposit tax, the idea was back on the table Friday. Neophytou said discussions were continuing on what percentage of accounts above the guaranteed 100,000 euro ($130,000) limit would be seized, in exchange for bank bonds.

That will happen for deposits in Laiki, and could be extended to other banks too, including the country's largest, the Bank of Cyprus, which also took significant losses on Greek debt.

One lawmaker said the size of the deposit tax would be large enough "so that the numbers add up."

Laiki bank's acting CEO, Takis Phidias, condemned the plan: "I'm certain that there will be chaos after these bills are approved."

Phidias said the initial plan to seize deposits across all Cypriot accounts "would have more evenly shared the burden and certainly, it would have safeguarded both large banks. I'd like to believe that there's still time to carry out this negotiation.

The Bank of Cyprus said it backed the idea of confiscating some percentage of all bank deposits over 100,000 euros because there were no immediate alternatives.

The bank 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."

Meanwhile, Cypriot efforts to clinch a contribution from Russia appeared to have failed. Russia is a key player in the crisis as Russian depositors have parked around 20 billion euros ($25.8 billion) in the country.

(Continued on page 2)

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