Cyprus has three days to agree on a new plan to raise funds to avoid bankruptcy after the European Central Bank warned Thursday it will pull the plug on the country’s banks at the start of next week if no bailout deal is agreed, CBC News informs. Facing the ultimatum, the Cypriot government was racing to cement a new package that will please both Parliament and the country’s potential international creditors. The “Plan B” was being hashed out after lawmakers soundly defeated an earlier proposal to seize up to 10 per cent of all domestic deposits to finance a rescue of the country. The Government has no plans as yet to ask for Parliament to be recalled if the banking crisis in Cyprus deepens over the Easter holidays, Commons Leader Andrew Lansley said
Nothing concrete from Moscow visit
The Cypriot Finance Minister Michalis Sarris was in Moscow yesterday for a second day to negotiate assistance from Russia, which has multi-billion dollar investments in Cyprus.Cyprus’ banks, which have been shut all week to prevent mass withdrawals, are to stay closed until next Tuesday. According to BBC, Cypriots are finding it increasingly difficult to perform everyday financial transactions as cash and credit dries up. “We didn’t discuss a [deposit] haircut and we are not reverting to it,” Cypriot parliament speaker Yiannakis Omirou told reporters. He was speaking after an emergency meeting between politicians and President Nicos Anastasiades. The deputy leader of the ruling Democratic Rally party, Averof Neophytou, said party leaders had unanimously agreed to create a “solidarity fund” with state assets, which would be used for an emergency bond issue, guardian.co.uk informs.
Meanwhile, 14 EU Commissioners are due in the Russian capital today for an EU-Russia Summit where Cyprus will almost certainly be discussed, if even only on the sidelines, cyprus-mail.com informs. Russian Prime Minister Dmitry Medvedev said the EU bloc had behaved “like a bull in a china shop” and compared its proposals, which would force Russian customers to contribute to the rescue of Cypriot banks, to Soviet-era confiscations.
A possible sign that Russia may be willing to see Cyprus consigned to the “dustheap of history” than put its money in a sinking Mediterranean ship was a report from Interfax news wire yesterday quoting the Russian PM. Medvedev warned that Russia may denounce the double taxation avoidance agreement with Cyprus should things get hairy in the Cypriot banking system. “We have an agreement on avoiding double taxation with Cyprus. I do not know whether we need this agreement in this case,” Medvedev said. He further warned that the collapse of Cyprus’ banking system may have “very many consequences”.
Fitch: Cyprus stalemate shows dangers of ad hoc crisis response
The crisis surrounding Cyprus brings into focus the costs of policymakers’ “muddling through” approach to the eurozone crisis, Fitch Ratings said in a statement. Without greater progress and clarity on the terms of financial and fiscal risk sharing between Euro Area Member States, each sovereign and bank crisis prompts an ad hoc response that exacerbates uncertainty and undermines market confidence and financial stability. “However, there are no immediate rating implications for other eurozone sovereigns. The proposed Cyprus bail-out programme confirms the strong desire of European policymakers to minimise costs to other eurozone taxpayers but marked the first attempt to <<bail-in>> bank depositors”, Fitch informs.
If other forms of capital controls are introduced as part of a programme agreed between the Cypriot authorities and the EU-IMF, Fitch would review the ‘AAA’ Country Ceiling assigned to all eurozone countries. “Limited debt service relief and legal constraints, and fears of the contagion from imposing losses on sovereign debt continue to be factored into our Cyprus sovereign rating of ‘B’/Negative. But without a quick resolution to an evidently unsustainable situation, the risk of a disorderly sovereign and bank default will increase”, Fitch said.