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bailout package
Cyprus has received the first installment of a 10 billion-euro bailout package from international creditors, which was agreed earlier this year.
Cyprus received 2 billion euros ($2.6 billion) in loans, said a statement by the European Stability Mechanism (ESM).
Another 1 billion euros will be transferred before June 30, the ESM said.
Eurozone finance ministers are also expected to sign off the latest tranche of Greece’s bailout, as it continues to struggle to reform its economy.
Another topic on the agenda at their meeting in Brussels is Slovenia, which is seen as potentially likely to follow Greece and Cyprus in seeking help from European authorities.
Concerns are growing despite a plan unveiled last week by Slovenia’s government, aimed at avoiding a bailout.
The government plans to restructure the country’s stricken banking system, raise taxes and privatize swathes of state-owned companies.
Meanwhile, Greece is expected to receive as much as 7.5 billion euros in the latest payment of its massive 240 billion-euro bailout, first agreed in 2010.
It needs the money to pay wages, pensions and bondholders.
Cyprus has received the first installment of a 10 billion-euro bailout package from international creditors
Earlier this month, the International Monetary Fund (IMF), one of the “troika” of international lenders behind the bailout, said Greece had made “progress” in tackling its budget deficit over the last three years.
But it also said structural reforms to the economy had been “insufficient” and problems of tax evasion had not been addressed.
Further austerity measures have been a condition of Greece receiving the latest installments of its bailout.
In a separate development, Germany’s finance minister has warned again that a single EU bank rescue authority backed by a bailout fund was not viable without overhauling EU treaties.
Existing EU treaties “do not suffice to anchor beyond doubt a new and strong central resolution authority,” Wolfgang Schaeuble wrote in the Financial Times on Monday.
European officials have called for a strong central authority, backed by a European rescue fund, to decide on what to do with failing banks.
This, they say, is key to establishing a “banking union” that would, in theory, stabilize the financial system in the region.
But Wolfgang Schaeuble said that promises to create an authority quickly without changing treaties would cost the EU credibility.
“We should not make promises we cannot keep,” he said.
“Amending the treaties takes time.”
Instead, he proposed that national agencies should co-operate with each other to oversee bank rescues.
This would result in a “timber-framed, not a steel-framed, banking union”, but it would buy time until treaty changes are made.
The European Commission, the EU’s executive arm, is working on a proposal for a mechanism to deal with failing banks, which it plans to unveil next month.
Cyprus’ parliament has rejected the controversial levy on bank deposits, proposed as part of an EU-IMF 10 billion-euro ($13 billion) bailout package.
No MPs voted for the bill, with 36 voting against and 19 abstaining.
Cyprus’ finance ministry had modified the package, proposing an exemption for savers with smaller deposits, but opposition had remained fierce.
Thousands of protesters who had filled the streets outside parliament reacted with joy to the news of the vote.
EU finance ministers have warned that Cyprus’ two biggest banks will collapse if the deal does not go through in some form.
However, there has been widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%
The plan was changed to exempt savers with less than 20,000 euros, with those over 100,000 euros charged at 9.9%, but this was not enough to placate critics.
Several MPs during the parliament debate on Tuesday evening denounced the proposed plan as “blackmail”.
President Nicos Anastasiades had urged all parties to back the bailout, saying Cyprus will be bankrupt if the deal does not go ahead.
But he also said earlier on Tuesday that MPs were likely to reject the levy, despite the modifications.
“They feel and they think it’s unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup.”
The president has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.
Cyprus’ parliament has rejected the controversial levy on bank deposits
The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, emphasized on Monday that no other eurozone country would be forced to impose such a levy.
The Cyprus central bank chief, Panicos Demetriades, has warned that scrapping the tax on small savers would scupper the plan to raise 5.8 billion euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.
Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
Panicos Demetriades said that he favored imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.
Instead, they argue that wealthier savers should pay the levy at a higher rate – losing more than 15% of their investments, correspondents say.
However, many of those larger deposits are held by Russians, and Russian leaders have already reacted angrily to the Cypriot levy – on Monday President Vladimir Putin called it “unfair, unprofessional and dangerous”.
Of the estimated 68 billion euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.
The Cypriot government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.
Russia has also said it may reconsider the terms of a 2.5 billion-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.
Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced.
Officials said he would also be looking for “further investment” in his country, correspondents report, with some speculating this might mean Russian access to Cyprus’ large undeveloped gas deposits.
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Finance ministers from eurozone have agreed a 10 billion-euro ($13 billion) bailout package for Cyprus to save the country from bankruptcy.
The deal was reached after talks in Brussels between the ministers and the International Monetary Fund (IMF).
In return, Cyprus is being asked to trim its deficit, shrink its banking sector and increase taxes.
For the first time in a eurozone bailout, bank depositors are facing a levy on their savings.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
“The Eurogroup was able to reach a political agreement with the Cypriot authorities on the cornerstones of this agreement,” Eurogroup head Jeroen Dijsselbloem said after almost 10 hours of the negotiations.
“The assistance is warranted to safeguard financial stability in Cyprus and the eurozone as a whole,” he added.
IMF chief Christine Lagarde, who took part in the talks, said earlier: “We don’t want a Band-Aid. We want something that lasts, that is durable and sustainable.”
The deal also involves a levy on bank deposits intended to ensure investors contribute to the bailout.
Finance ministers from eurozone have agreed a 10 billion-euro bailout package for Cyprus to save the country from bankruptcy
People with less than 100,000 euros in Cypriot bank accounts will have to pay a one-time tax of 6.75%, while those with more will have to pay 9.9%. It is expected to raise 5.8 billion euros in additional revenue.A European Central Bank (ECB) official said the Cypriot authorities had already started to take action to ensure that the levy can be collected. Otherwise, there would be a likelihood of massive withdrawals to avoid it, our correspondent adds.
There has also been speculation that Russia could help finance the bailout by extending a 2.5 billion-euro loan already made to Cyprus. Cypriot Finance Minister Michael Sarris will travel to Moscow for meetings on Monday, reports say.
There are a lot of Russian deposits in the Cypriot banking system, according to economists.
Jacob Funk Kirkegaard, of the US-based Peterson Institute for International Economics, said that was a potential problem for any bailout negotiations.
“There is a general political sentiment that it is not acceptable to be bailing out a country, and thereby putting European taxpayers’ money at risk, to basically protect Russian depositors in Cypriot banks,” he said.
The Cypriot economy accounts for barely 0.2% of the eurozone’s overall output. But there is concern within the euro bloc that a default by Cyprus risks undermining the progress being made in Greece.
Cyprus is the fifth country to receive eurozone assistance since the bloc’s financial crisis began to unfold in earnest nearly three years ago.
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