Cyprus parliament has voted to restructure the island’s banks, set up a “national solidarity fund”, and establish capital controls to prevent a bank run.
Efforts continue to reach consensus on other key issues such as levies on bank deposits.
Cypriot President Nicos Anastasiades is to hold talks in Brussels with the EU before Cyprus’s parliament reconvenes.
Cyprus needs to raise 5.8 billion euros ($7.5 billion) to qualify for a 10 billion-euro bailout.
On Friday, the Cypriot parliament passed a total of nine bills, covering three main elements of the rescue plan including:
- Restructuring of the banking sector, starting with the most troubled bank of all – Laiki (Popular) Bank, the country’s second largest
- The creation of a solidarity fund: nationalizing pension funds and other state assets
- The approval of capital controls to prevent large fund withdrawals out of Cyprus
Cyprus parliament has voted to restructure the island’s banks
The bank levy issue may come before parliament later in the weekend. A levy, possibly of around 15%, on all deposits over 100,000 euros, has been suggested.
The “solidarity fund” would allow the pooling of state assets for an emergency bond issue, reports the Reuters news agency.
These include future gas revenues and some pension funds – an idea that German Chancellor Angela Merkel has strongly condemned.
Under the bank restructuring, Cyprus’ troubled lenders will be split into so-called good and bad banks.
Before the series of much-delayed votes in an emergency session of parliament, the European Union, Germany and leading bankers all urged MPs to speedily pass the reforms.
Eurozone finance ministers have called a meeting on Sunday to discuss the Cyprus crisis.
The European Central Bank has given Cyprus until Monday to raise the bailout money, or it says it will cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.
The EU has postponed next week’s summit to discuss free trade with Japan, so European leaders can concentrate on trying to solve the Cyprus crisis.
Cyprus banks have been closed since Monday and many businesses are only taking payment in cash.
Spain’s decision to request a loan of up to 100 billion Euros ($125 billion) from eurozone funds to help shore up its struggling banks has won broad support.
The International Monetary Fund (IMF) said the bailout was big enough to restore credibility to Spain’s banks.
Washington welcomed the measure as a vital step towards the “financial union” of the eurozone.
The move was agreed during emergency talks between eurozone finance ministers on Saturday.
IMF managing director Christine Lagarde said the plan for Spain should provide “assurance that the financing needs of Spain’s banking system will be fully met”.
“I strongly welcome the statement by the Eurogroup, which complements the measures taken by the Spanish authorities in recent weeks to strengthen the banking system,” she said.
“The IMF stands ready, at the invitation of the Eurogroup members, to support the implementation and monitoring of this financial assistance through regular reporting.”
Spain's decision to request a loan of up to 100 billion Euros ($125 billion) from eurozone funds to help shore up its struggling banks has won broad support
US Treasury Secretary Timothy Geithner welcomed the latest moves as “important for the health of Spain’s economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area”.
France’s Finance Minister Pierre Moscovici said the deal would “contribute to restoring confidence in the eurozone”.
The president of the European Commission, Jose Manuel Barroso, said he was confident that through bank restructuring and other reforms, Spain could gradually regain the confidence of investors and create the conditions needed for sustainable growth and job creation.
Earlier, Spanish Economy Minister Luis de Guindos announced that his country would shortly make a formal request for assistance.
Luis de Guindos said the help would be for the financial system, not the economy as a whole.
“This is not a rescue,” he said.
He also said the aid would not come with new austerity measures attached to the economy. Spain has already imposed strict economic reforms in a bid to tackle its debt problems.
The loan will bolster Spain’s weakest banks, left with billions of Euros worth of bad loans following the collapse of a property boom and the recession that followed.
Some banks borrowed large amounts on the international markets to lend to developers and homebuyers, a riskier strategy than funding it with deposits from savings.
The exact amount that Spain will receive will be decided after the completion of two audits of its banks, due to be completed by the end of June.
The money will come from two funds created to help eurozone members in financial distress – the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), which enters into force next month.
Investors have recently demanded higher and higher costs to lend to Spain, making it too expensive for the country to borrow the money needed for a bank rescue from the markets.