Cyprus banks given bailout deadline as residents rush to atms
The European Central Bank has given Cyprus until Monday to raise €7 billion in order to secure a €10 billion loan from the EU and IMF. If the country does not meet the deadline, emergency funds will be withdrawn from the banks.
The ECB ultimatum arrived as the Cypriot government announced a new “solidarity fund” designed to rally assets and retain the liquidity the country needs to recover from recession.
“A unanimous decision was taken for the establishment of an Investment Solidarity Fund,” said spokesman for the government in an official statement. “The proposal is currently undergoing legal and technical processing by the Law Office of the Republic... For this purpose draft, legislation is being prepared by the Law Office of the Republic, which will be presented before the Council of Ministers in a meeting today at 6pm.”
The ECB deadline was introduced in an attempt to prevent Cyprus’ own deficit being passed onto the rest of Europe. Indeed, if a bank run began, notes the Guardian, the current liquidity provided by the ECB may not be enough to cover it.
“Extending the ELA without a clear deal could lead to a significant transfer of risk towards the ECB and questions over its credibility,” explains Open Europe.
“This would be a particularly poisonous debate in Germany, something which neither the ECB nor the German government would want ahead of the German elections in September.”
Some Cypriot politicians proposed introducing a levy on bank deposits to generate the required €5.8 billion. The levy would also have applied to those of Russian origin, reported the BBC, which account for up to one half of the country’s bank deposits.
One commenter, Yulia Latynina, accused the EU of "robbing depositors in Cypriot banks of $2bn” in the newspaper Novaya Gazeta, writing: “There is a lot of dirty money (mostly Russian) in Cyprus, and European banks want to have this money for themselves.”
As a result, the plan was scrapped in favour of raising capital gains tax and corporate tax rates instead.
Russia has since been approached to buy some of Cyprus’ banks, but the country’s officials reportedly denied any interest.
“We don't, of course, have any plans of that sort,” Andrei Kostin, the head of Russia's second biggest bank, VTB, told Guardian reporter Howard Amos. “Our interests are that we are given the opportunity to carry out payments and access the accounts of our clients.”
With the banks closed until Tuesday to prevent mass withdrawals, the resulting confusion has seen long queues form outside the bank Laiki, with local residents lining up to take their money via ATMs.
Photos of the long queues have been tweeted all day, while notes of a conference call seen exclusively by Reuters has revealed that eurozone officials are increasingly alarmed over Cyprus’ future in the eurozone.
"The economy is going to tank in Cyprus no matter what," the conference call’s chairman was quoted as saying, while others admitted that they were “in a mess” over the country’s economic plight.