Euro ministers bid to resolve Cypriot crisis
The Cypriot parliament refused to vote for the bailout deal when they met in special session in Nicosia yesterday, and will keep financial institutions closed until Thursday to prevent a run that could destroy their fragile banks.
Investors feared forcing savers in even one country to shore up banks set a dangerous precedent that would reignite the crisis and saw the value of the euro falling and stocks hit globally.
There was some panic, even in Germany, forcing chancellor Angela Merkel to twice reassure her citizens yesterday that their savings were in no danger, telling them the state guarantee on €100,000 deposits would not be touched.
Here, the Government will be keeping a close watch on Irish banks today to see if worried depositors move their savings.
Eurogroup ministers gave Cyprus the go-ahead to change the levy they impose on savers, but the ECB insisted that, irrespective of who they take the money off, it must total €5.8bn.
The Cypriot authorities said they wanted to take 3% rather than 6.75% off those with savings of less than €100,000, and 12.5% from deposits of over €100,000.
They plan to vote on the conditions today at around 4pm Irish time, but it was not certain that a majority of the 56 members of parliament would support it.
A statement from the eurogroup president, Dutch finance minister Jeroen Dijsselbloem, described the tax as a “stability levy” and said it was a “one-off measure” that would help towards safeguarding financial stability in Cyprus.
However, analysts were warning that making savers pay for banks, especially when bondholders were not being touched, would dash recent growth in confidence in the euro.
The eurozone ministers had hoped that Russia would extend the time to repay a €2.5bn loan to Cyprus but finance minister Anton Siluanov said Moscow would take the Cyprus levy into account.
Up to €20bn, or 30%, of deposits in Cyprus’s financial sector is Russian, prompting president Vladimir Putin to describe the levy as unfair and dangerous. He is reported to be considering guaranteeing the losses.
Cyprus needed €17bn to rescue banks badly hurt by the haircuts on Greek bonds which they held. However, German, Finnish, and Dutch ministers especially and the IMF insisted they only receive €10bn as more would put their debt at over 140%. Berlin and the ECB were adamant that Cypriot depositors would have to help pay for the €7bn, together with an increase in their corporation tax rate from 10% to 12.5%.
