Turkey has been threatened with sanctions by
the EU if it continues “illegal drilling” in waters near Cyprus in
the eastern Mediterranean.
The warning came at an EU summit in Brussels.
EU Commission President Jean-Claude Juncker called Turkey’s actions
“totally unacceptable”.
On June 20, Turkey launched the Yavuz, a second drilling ship for natural
gas and oil prospecting off Cyprus.
The Republic of Cyprus is an EU member, but the breakaway north is
pro-Turkey.
The European Council called on Turkey to “show restraint, respect the
sovereign rights of Cyprus and refrain from any such actions”.
The statement said: “The European
Council endorses the invitation to the [EU] Commission and the EEAS [EU foreign
affairs service] to submit options for appropriate measures without delay,
including targeted measures.”
The self-declared Turkish Republic of Northern Cyprus is recognized only by
Turkey, and is internationally isolated.
Turkey said it was drilling inside
its continental shelf, complying with international law.
A Turkish drilling ship, the Fatih,
had been anchored west of Cyprus since early May and had begun drilling, the
Reuters reported.
Turkey is a candidate for EU
membership but its negotiations are currently frozen. The EU Commission has
said President Recep Tayyip Erdogan’s government has backtracked on pledges to
improve justice and the rule of law. The Turkish government has purged state
institutions since an abortive coup attempt against Recep Tayyip Erdogan in
July 2016.
Greek PM Alexis Tsipras said the
threatened EU measures “are against companies and individuals, a possible
EU accession process freeze and measures with significant economic
consequences”.
He said at Brussels summit: “These will take place unless Turkey
stops its illegal operations inside the Exclusive Economic Zone of Cyprus.”
Turkey – a key NATO partner for the
West – has extensive trade ties with the EU and has not yet been hit with EU
sanctions, unlike Russia.
The US has also threatened Turkey with sanctions if President Erdogan goes ahead with a deal to buy S-400 air defense missiles from Russia.
Seif Eldin Mustafa, the Egyptian man accused of hijacking and forcing an EgyptAir plane to land in Cyprus on March 29 using a fake suicide belt, has appeared in court in Cyprus.
The Larnaca court ordered an eight-day detention for Seif Eldin Mustafa.
Possible charges include air piracy, kidnapping and threatening behavior.
Seif Eldin Mustafa did not speak, but gave a victory sign as he was driven away by police. Cypriot authorities have described him as “psychologically unstable”, saying the incident was not terrorism-related.
EgyptAir flight MS181 was carrying 56 passengers from Alexandria to Cairo, along with six crew and a security official, when it was diverted to Cyprus.
During a stand-off lasting more than six hours, almost all passengers and crew were freed unharmed as authorities negotiated with Seif Eldin Mustafa.
One person, apparently a crew member, climbed out of a cockpit window, minutes before the suspect walked calmly out of the plane to surrender.
Cypriot Foreign Minister Ioannis Kasoulides said Seif Eldin Mustafa had initially asked to speak with his Cypriot ex-wife, who was brought to the airport by police, before making a series of “incoherent” demands.
Cyprus’ President Nicos Anastasiades had responded to a reporter’s question about whether the hijacker was motivated by romance, by laughing and saying: “Always there is a woman involved.”
Egyptian authorities said security measures had been “fully implemented” before the flight.
CCTV footage released by the interior ministry shows Seif Eldin Mustafa being frisked at two security checks and passing a slim bag through X-ray machines at Alexandria’s Borg El Arab airport.
Egypt has taken steps to improve airport security after Russian Metrojet Flight 9268 was blown up over Sinai in October 2015.
They include an extra $1 billion a year and a deal with British consultancy Control Risks to review procedures at Cairo, Sharm El-Sheikh and Marsa Alam airports.
The EgyptAir hijacker has been arrested in Cyprus hours after he diverted the domestic Egyptian flight to Larnaca airport and all hostages were released.
EgyptAir Flight MS181 was taken over by a passenger claiming to be wearing a suicide explosive belt.
Airline officials later said they had been told by Cypriot authorities that the belt was fake.
The hijacker’s motives remain unclear but Cyprus President Nicos Anastasides said the incident was not terrorism-related.
No-one was injured in the hijacking, Cypriot government spokesman Nikos Christodulides tweeted.
After a morning of tension, the hijacker was seen walking down aircraft steps at Larnaca airport with his hands raised.
Some reports said the Egyptian man – named by Cypriot officials as Seif Eldin Mustafa – wanted to talk to his estranged Cypriot wife who lives on the Mediterranean island, while others said he was seeking the release of female prisoners in Egypt.
The hijacker’s surrender came shortly after several people were seen fleeing the aircraft. One – apparently a crew member – escaped by climbing out of the aircraft’s cockpit window.
In a tweet, the Cypriot foreign ministry confirmed the end of the crisis: “It’s over. The hijacker arrested.”
Throughout the morning, passengers had been seen leaving the aircraft after appearing to have been released.
Local media reports said the hijacker had handed over a four-page letter in Arabic after the plane landed at Larnaca in the morning, and that later a woman thought to be his wife had arrived at the airport.
Earlier, President Nicos Anastasiades had responded to a reporter’s question about whether the hijacker was motivated by romance, by laughing and saying: “Always there is a woman involved.”
EgyptAir said the Airbus A320 was carrying 56 passengers from Alexandria to Cairo, along with six crew members and a security official. It had initially said 81 passengers were on board.
A statement from Egypt’s civil aviation ministry said 26 foreign passengers were on board, including eight Americans, four Dutch citizens, four Britons, two Greeks, two Belgians, a French national, an Italian and a Syrian.
Larnaca airport, on the south coast of Cyprus, has been closed and scheduled flights diverted elsewhere.
Part of the passengers on board a hijacked EgyptAir plane that was forced to divert to Cyprus have been freed, the airline says.
The Egyptian airliner said negotiations had resulted in the release of all those on board Flight MS181 apart from the crew and four foreign passengers.
Video from Larnaca airport has shown people leaving the plane and boarding a bus.
It was taken over after a passenger said he was wearing an explosives belt.
Latest reports from Cyprus media suggest there is just one hijacker who was motivated by “personal reasons” and may be seeking asylum – although this has not been confirmed.
EgyptAir said the Airbus A320 was carrying 81 passengers from Alexandria to Cairo.
A senior Alexandria airport official said those on board the flight when it took off included 30 Egyptians, eight Americans, four Dutch, four Britons, two Belgians and one Italian.
Larnaca airport, on the south coast of Cyprus, has been closed and scheduled flights diverted elsewhere.
“The pilot said that a passenger told him he had an explosives vest and forced the plane to land in Larnaca,” the Egyptian civil aviation ministry said in a statement.
Cyprus’ Greek and Turkish leaders have for the first time given a joint TV address to wish residents a happy holiday.
President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci said they hoped for a peace deal in 2016.
The latest round of negotiations aiming at reunification of the divided island has been going on for more than seven months.
The Turkish-controlled north broke away in 1974 after a Greek-inspired coup.
Nicos Anastasiades said his wish was for Greek and Turkish Cypriots to be able to live peacefully together in a reunified Cyprus, while Mustafa Akinci said he hoped 2016 would bring lasting peace for all.
“I wish the New Year will bring lasting peace, serenity and prosperity to all Cypriots,” Mustafa Akinci was quoted as saying by the Cyprus Mail.
According to the Cyprus Mail, Nicos Anastasiades and Muastafa Akinci will meet three times in January.
In 2004, Greek Cypriots rejected a UN plan to reunify the island. They were unhappy at limits on their right to return to property in the Turkish north.
Turkish Cypriots voted in favor of the plan.
The self-declared Turkish Republic of Northern Cyprus is diplomatically isolated, recognized only by Turkey.
UN peacekeeping forces estimate that 165,000 Greek Cypriots fled or were expelled from the north, and 45,000 Turkish Cypriots from the south, although the parties to the conflict say the figures are higher.
Mustafa Akinci has won the presidential election in the Turkish Republic of Northern Cyprus.
Standing as an independent, leftist Mustafa Akinci, 67, won 60.3% of the votes in Sunday’s runoff, according to election commission figures.
He defeated incumbent conservative President Dervis Eroglu, a conservative elected five years ago.
Mustafa Akinci has said he would work with renewed urgency to find a peace deal on Cyprus after four decades of division.
The island was divided in 1974 by a Turkish invasion staged in response to a short-lived Greek-inspired coup staged to secure a union with Greece.
Photo Reuters
Peace negotiations came to a halt last October, when Greek Cypriots walked out in protest over Turkish rights to explore natural gas off northern Cyprus.
Correspondents say that Mustafa Akinci is viewed as a moderate who can push forward the stalled reunification talks that are expected to resume next month.
The new president capitalized on a wave of discontent against Dervis Eroglu, who failed to unite right-wing supporters.
“We achieved change and my policy will be focused on reaching a peace settlement,” Mustafa Akinci told thousands of joyful supporters at a victory rally.
“This country cannot tolerate any more wasted time.”
Mustafa Akinci said that he had already spoken to Greek Cypriot President Nicos Anastasiades and that they had agreed to meet soon.
“[Nicos] Anastasiades and I are [of] the same generation… If we can’t solve this now, it will be a tremendous burden on future generations,” he said, pointing out that the strength of his victory was a riposte to those who accused him of selling out to Greek Cypriots.
Mustafa Akinci earned his political colors during a 14-year term as mayor of the Turkish-Cypriot half of the capital Nicosia from the late 1970s to the early 1990s.
Three hundred people have been rescued by Salamis Filoxenia cruise ship off Cyprus after their boat ran into trouble in rough seas.
The stranded are thought to be Syrian refugees.
The refugees were taken aboard the Salamis Filoxenia, Limassol port master Girgos Pouros said. All are said to be in good health.
Most of the people on the small fishing boat that sent a distress signal were women and children.
They were spotted 55 nautical miles south of the town of Paphos.
Cypriot authorities said they picked up a radio distress signal as the boat was caught in rough seas
“It was quite a difficult operation,” Kikis Vasiliou, director of Salamis Cruises that owns the cruise ship, was quoted as saying by the Cyprus Mail website.
“All the passengers are safe.”
The vessel was expected to dock in Limassol later on Thursday, September 25.
Cypriot authorities earlier said they picked up a radio distress signal as the boat was caught in rough seas.
This year has seen a dramatic increase in the number of migrants crossing the Mediterranean in overcrowded boats – particularly people fleeing the conflict in Syria. The majority have headed for Italy and Malta.
Libya, racked by unrest and lawlessness, has become a major people-trafficking hub. However, Cyprus lies closer to Syria.
Norway’s Major General Kristin Lund was appointed to lead troops in Cyprus.
Kristin Lund, 55, is the first woman woman to command a UN peacekeeping force.
Norway’s Major General Kristin Lund was appointed to lead troops in Cyprus
She has a distinguished military career going back 34 years and including postings in Lebanon and Afghanistan, a UN statement said.
Kristin Lund will replace China’s Major General Chao Liu on August 13.
In Cyprus, Kristin Lund will command 996 soldiers and police officers as well as 149 civilian staff.
Cyprus has been divided since 1974 when Turkey invaded the north in response to a military coup on the island which was backed by the government of Greece.
Since then, the northern third has been mainly inhabited by Turkish Cypriots and the southern two-thirds by Greek Cypriots.
Kristin Lund’s first overseas mission was in 1986 as transport officer with the UN peacekeeping mission in Lebanon.
Panicos Demetriades – the governor of Cyprus central bank – has resigned after reportedly experienced difficulties with the government and had been criticized for his handling of the country’s 10 billion-euro bailout.
There was no official statement on Monday about why Panicos Demetriades had stepped down.
Panicos Demetriades’ departure comes after Cyprus’ bailout was thrown into doubt when its parliament rejected a key part of the plan, and then passed it a day before the deadline was due to expire.
A spokesperson for the European Central Bank said: “The ECB takes note of the resignation of Panicos Demetriades who has been the governor of the central bank of Cyprus through very difficult times and played an important role in the implementation of the adjustment program.”
They added: “We count on a fruitful cooperation with his successor.”
Panicos Demetriades has resigned after being criticized for his handling of Cyprus’ 10 bn-euro bailout
Cyprus was nearly bankrupted after Greece’s financial crisis in 2010.
The country’s banks were hit heavily but its government did not have the funds to issue a bailout.
Slow economic growth and the stance of international lenders, who stopped offering loans, added to the pressure on the country’s finances.
Panicos Demetriades, formerly an economics professor at the University of Leicester, was appointed in May 2012 for five years by Cyprus’ former communist president, Demetris Christofias.
The former president has reportedly been blamed for policies which could have contributed to Cyprus’ crisis.
Last year Cyprus’ banking system was rescued from collapse by a 10 billion-euro bailout from the EU and IMF.
Current president, Nicos Anastasiades, said in September he might ask the country’s supreme court to rule on whether Panicos Demetriades could be sacked.
That was despite the ECB last year issuing repeated warnings to the Cypriot authorities not to interfere with the governor’s work.
Last month Cyprus’ lawmakers threw the bailout program, and the country’s next tranche of cash, into doubt over a bill allowing state firms to be privatized.
Cyprus’ parliament rejected a key part of the country’s bailout plan.
As part of the 10 billion-euro ($13.7 billion) deal with the EU and International Monetary Fund (IMF), lawmakers have until March 5 to pass a bill allowing state firms to be privatized.
On Thursday, the lawmakers threw it out, jeopardizing the next tranche of cash.
The government says it will re-submit the bill with some amendments.
Cyprus’ parliament rejected a key part of the country’s bailout plan
The deal was agreed in March last year in an attempt to stave off the collapse of Cyprus’s banking sector and the wider economy.
It included moves to restructure the banks, along with other measures such as tax rises and privatizations.
Late on Thursday, the privatization bill was narrowly defeated after parliament split 25-25 on the vote, with five abstentions. This meant the legislation failed to pass.
The vote took place as hundreds of people opposed to privatization staged a protest outside the parliament building.
A government spokesman, Christos Stylanides, said the bill would be amended to reflect concerns over workers’ rights after privatization.
The new version of the bill would be submitted to the House of Representatives on Friday.
Cyprus ex-President Glafcos Clerides, who oversaw his country’s entry into the EU in 2004, has died at the age of 94 in a Nicosia hospital.
Glafcos Clerides’ personal doctor confirmed the news after reports that he was in a critical condition due to his age and past health problems.
He served two terms, from 1993 to 2003, and was briefly acting president during the 1974 Turkish invasion.
President Glafcos Clerides is the man who steered Cyprus into EU
However, his career in Cypriot politics spanned half a century.
Glafcos Clerides was a “great European statesman”, the centre-right European People’s Party group at the European Parliament said in a tweet marking his death.
In an obituary, the Cyprus Mail noted that he “may fondly be remembered by the international community as the sparring partner of long-time nemesis Rauf Denktash, the leader of the self-declared Turkish Republic of Northern Cyprus who died last year.
Glafcos Clerides backed a UN reunification plan, which was approved by Turkish Cypriots but rejected by Greek Cypriots in separate votes in 2004.
Glafcos Clerides was also one of the last European leaders who saw active service in World War Two. As a gunner in the Royal Air Force, he was shot down over Germany and captured but tried to escape from captivity at least twice.
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.
Cypriot President Nicos Anastasiades has announced he will appeal for extra assistance from the EU after it emerged yesterday that the country would need to raise an extra 6 billion euros ($7.8bn) to secure a 10 billion euro bailout from Brussels and the IMF.
Nicos Anastasiades is urging EU leaders to change their policy towards Cyprus, but he is not asking for more money.
The president made the announcement ahead of a eurozone finance ministers meeting in Dublin.
According to a draft document prepared by the country’s creditors, the cost of the rescue has risen to 23 billion euros from 17.5 billion euros, with Cyprus now having to find 13 billion euros of this.
The Dublin meeting will review how Cyprus can raise its contribution to the bailout being put together by the EU and IMF.
A Cypriot official in Dublin said Cyprus is not seeking more bailout money, but is rather seeking help from EU to reduce the burden of the conditions to make the bailout possible.
Cyprus says it is not seeking more bailout money, but is rather seeking help from EU to reduce the burden of the conditions to make the bailout possible
Meanwhile, the German government has confirmed that the size of a eurozone bailout would not rise.
“The contribution from international creditors will not change,” said German government spokesman Steffen Seibert, noting that 10 billion euro package was “already very large”.
Nicos Anastasiades said he had already spoken to EU Economy and Euro Commissioner Olli Rehn ahead of the Dublin meeting.
The president also said he would also be writing to European Commission chief Jose Manuel Barroso and to EU President Herman Van Rompuy.
“The letter to Mr. Barroso and Mr. Rompuy will refer to the need for EU policy to change towards Cyprus by giving it extra assistance, given the critical times we are going through as a result of the economic crisis and the measures imposed on us,” Nicos Anastasiades said.
Analysts said the increase in the cost of the bailout meant Cyprus faced huge new challenges.
Jonathan Loynes, chief European economist at Capital Economics, said that the “biggest burden of the increase in the bailout will fall on depositors and bank bond-holders, whose combined contribution will rise from an expected 5.8 billion euros to 10.6 billion euros.”
Under bailout terms agreed in March, depositors with more than 100,000 euros in savings will bear part of the cost of the rescue.
The bank sector on which much of the Cypriot economy was dependent is shrinking, and thousands of jobs are being lost.
Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.
Late on Thursday, Cyprus relaxed restrictions that were imposed last month on access to accounts in order to head off a run on banks.
The capital controls, the first that any eurozone country has applied, were put in place when banks reopened on March 28 after they were closed almost two weeks until a bailout agreement.
A new decree, which will remain in place for seven days, lifts all restrictions on transactions under 300,000 euros, a move aimed at helping cash-starved domestic businesses which had difficulty paying suppliers and employees.
Also, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros.
However, the daily cash withdrawal limit of 300 euros stays in place.
ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was “not smart”.
Mario Draghi said a proposal to make “insured depositors” pay did not come from the European Central Bank, the European Commission or the IMF.
He said the proposal only arose in talks with the Cypriot authorities, and was “swiftly corrected”.
Mario Draghi was speaking after the ECB held eurozone interest rates at 0.75% again.
It was the ninth month in a row that the interest rates had been kept unchanged, but Mario Draghi indicated that the ECB was ready to act, if necessary.
He also suggested that the problems seen for some time in smaller, weaker economies such as Spain, were spreading to stronger economies.
Cyprus eventually agreed a 10 billion-euro ($12.8 billion) international bailout, which will see depositors with more than 100,000 euros lose some of their savings.
Accounts which have less than 100,000 euros in them will not be affected, but would have been under the original bailout proposals.
ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was not smart
Speaking about the bailout, Mario Draghi said that the initial plan to impose a levy on all depositors “was not smart to say the least”.
He said the ECB did not envisage savers covered by a guarantee – that is, those with up to 100,000 euros in savings – being forced to contribute towards the country’s rescue plan.
“You have a pecking order, and here the insured depositors should be the very last category to be touched,” he said.
“The [European] Commission draft directive foresees exactly this.”
Mario Draghi also told a news conference that the Cyprus bailout was not a blueprint for what would happen in further bailouts.
“Cyprus is no template,” he said.
Mario Draghi was asked whether it would have been better for Cyprus to leave the euro.
“What was wrong with Cyprus’s economy doesn’t stop being wrong if they are outside the euro,” he said.
“So, the fiscal budget stabilization, consolidation, the restructuring of the banking system would be needed anyway, whether you are in or out. To be out doesn’t preserve the country from the need for action.”
Leaving the euro would entail a big risk for Cyprus, and that an exit from the currency could find the country having to pursue reforms “in a much more difficult environment”, he added.
Mario Draghi also said that the recent crisis in Cyprus had “reinforced the Governing Council’s determination to support the euro”.
Despite continuing signs of economic weakness across the eurozone, the ECB president said rates were on hold “for the time being” by consensus.
He said he expected to see a gradual economic recovery in the second part of 2013.
However, Mario draghi said that growth was “subject to downside risks”. Risks included slow implementation of structural reforms by governments, or weak domestic demand.
“These factors have the potential to dampen the improvement in confidence and thereby delay the recovery,” he added.
After his comments the euro fell to its lowest level in more than four months against the dollar, to $1.2745 – the weakest since mid-November – before recovering its losses.
However, Mario Draghi said that inflation would be contained in the medium term, but the bank would act if necessary.
“Our monetary policy stance will remain accommodative for as long as needed,” he said.
“In the coming weeks, we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability.”
Mario Draghi also reiterated that the ECB could not step into the gap left by a lack of action by eurozone governments to solve the region’s debt crisis,
“We cannot replace lack of capital in the banking system or the lack of actions by governments. The most stimulative measures is to pay the arrears.”
The latest indication of the state of the eurozone economy came on Thursday from financial information service Markit, which said the region’s economic contraction had worsened last month.
Its closely-watched composite purchasing managers’ index (PMI), which tracks both the services and manufacturing sectors, also suggested that the German economy slowed to “near stagnation” last month, while France’s recorded its biggest contraction for four years.
European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout.
On Monday morning, hopes the deal would solve the crisis lifted shares.
By 15:30 GMT, all major European markets had fallen into negative territory, joined by US stocks.
Cyprus’ President Nicos Anastasiades, later addressed his country in a television broadcast.
The deal was “painful” but the best that could have been struck under the circumstances, he said.
Nicos Anastasiades said that controls limiting restricting the movement of capital would be temporary and he promised to protect the weak, saying that welfare payments would be met.
Earlier, markets in Europe and the US moved downwards when Jeroen Dijsselbloem, the Dutch Finance Minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.
“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” Jeroen Dijsselbloem told Reuters and the Financial Times.
Jeroen Dijsselbloem later added a clarification saying that Cyprus was “a specific case with exceptional challenges”.
The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers – and bondholders, who lend through financial markets.
European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout
Jeroen Dijsselbloem said the pattern for bank rescues should see shareholders take the first hit, then bond holders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.
But his remarks raised fears that other European countries with struggling banks may face the same solution as Cyprus, which agreed to force those with cash on deposit above 100,000 euros, many of whom are Russian, to pay a substantial tax.
Cyprus will receive 10 billion euros ($13 billion) in bailout funds, but has agreed to a major restructuring of its banks.
Small savers will be protected but Cyprus’s second largest bank – Laiki Bank – will be wound up and split into “good” and “bad” banks, with its good assets eventually merged into the Bank of Cyprus, the country’s biggest bank.
The two banks will remain closed until Thursday, while all others will reopen on Tuesday after being closed for more than a week, Cyprus’s central bank says.
The Cypriot government suggested that account holders with deposits of more than 100,000 euros should expect to lose about 30% of their balances.
The UK’s FTSE 100 index ended the day down 0.2%, while Germany’s Dax gave up 0.5%, and France’s Cac lost 1.1%. In New York, the Dow Jones was 0.5% lower.
In Madrid, the market slipped 2.5% while the Milan index was down 2.27%.
The euro was also driven lower, falling to a six-week low against the pound. The euro was down 0.6% to 84.74 pence.
The new deal for Cyprus, unlike previous agreements, does not require the approval of the Cypriot parliament.
The uncertainty over the future of Cyprus in the eurozone was sparked a week ago when its parliament rejected an earlier bailout deal, which also included a controversial bank levy.
Despite the Cypriot economy’s relatively small size, many analysts had been concerned that the crisis would spread to the wider eurozone, had Cyprus been forced to give up the single currency.
There were fears that the country’s possible exit from the euro would trigger a loss of confidence across the single currency bloc, and prompt investors to withdraw from other troubled economies, such as Greece.
However, while Cyprus is now likely to remain in the eurozone, the country still faces significant obstacles as it attempts to recover from the crisis.
The EU-IMF deal involves a massive restructuring of the Cypriot banking system, as well as austerity measures and tax increases.
There has also been significant public anger in Cyprus at the intervention of European authorities, and the credibility of the Cypriot government has been questioned.
Asian markets and the euro have risen after EU officials agreed a bailout deal for Cyprus, easing fears that the country’s banking system problems may spread.
Cyprus will now get a 10-billion euro ($13 billion) cash injection to keep its banking system running and prevent it from crashing out of the eurozone.
Investors had feared that its exit from the bloc may escalate the region’s debt crisis and derail a global recovery.
Shares in Japan, South Korea, Hong Kong and Australia rose on the news.
“The news was what markets were waiting for, some kind of an agreement,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
Japan’s Nikkei 225 index rose 1.7%, South Korea’s Kospi gained 1.5%, Hong Kong’s Hang Seng added 0.6% and Australia’s ASX200 was up 0.5%.
A failure to reach a deal may have seen the European Central Bank (ECB) cut emergency funding to Cyprus’s two biggest banks, leading to an effective bankruptcy of Cyprus’s government.
The fears were that such a move may prompt the country’s exit from the bloc.
Many analysts had been concerned that Cyprus’s exit may cause a loss of confidence across the eurozone and prompt investors to withdraw from other troubled economies of the bloc, such as Greece.
These concerns had seen investors ditch the euro over the past few days in favor of other assets, such as the Japanese yen and US dollar, seen as comparatively safer.
Asian markets have risen after EU officials agreed a bailout deal for Cyprus
However, news of the Cyprus deal boosted the euro.
The single currency gained 0.8% against the US dollar. It was trading at $1.3044 in early Asian trade.
It rose 1.3% against the Japanese yen to trade at 123.81 yen.
“This will likely limit the euro’s downside, with those who shorted the euro covering their positions, and improve general risk sentiment,” said Hiroshi Maeba, head of foreign exchange trading for UBS in Tokyo.
Ben le Brun, an analyst at OptionsXpress in Sydney, added that the deal was likely to have a positive impact on the oil markets as well.
“We should see some positive sentiment reverberate through energy markets overall for at least the next 24 to 48 hours,” he said.
Brent Crude rose 0.3% to $108.34 per barrel in Asian trade, while US Light Crude gained 0.4% to $94.1 per barrel.
Cyprus had agreed a bailout deal with the EU and the IMF last week.
However, the EU and IMF had asked Cyprus to raise 5.8 billion euros in order to secure the funds.
They had proposed that Cyprus impose a one-off levy on bank deposits in order to raise the cash, a move that triggered protests in Cyprus and resulted in savers rushing to ATM machines to withdraw their money – a move that brought fears of a run on the banks.
The Cyprus parliament rejected the proposal last week, delaying an agreement to secure the bailout funds.
According to the latest deal, all deposits under 100,000 euros will be “fully guaranteed”.
However, Laiki (Popular) Bank, the country’s second-biggest, will be wound down and holders of deposits of more than 100,000 euros will face big losses.
The levy on accounts in Laiki Bank could be as high as 40%, correspondents say.
Large deposits in the Bank of Cyprus, the country’s biggest bank, will also face a levy.
Jeroen Dijsselbloem, president of the Eurogroup of eurozone finance ministers, told a press conference in Brussels that the percentage to be levied on large deposits in the Bank of Cyprus will be decided in the coming weeks.
Analysts said that while the draft deal had helped ease market jitters, uncertainties surrounding its implementation were likely to hurt sentiment in the coming days.
Eurogroup have agreed a deal on a 10 billion-euro bailout for Cyprus to prevent its banking system collapsing and keep the country in the eurozone.
Laiki (Popular) Bank – Cyprus’ second-biggest – will be wound down and holders of deposits of more than 100,000 euros will face big losses.
However, all deposits under 100,000 euros will be “fully guaranteed”.
The European Central Bank (ECB) had set a deadline of Monday for a deal.
Laiki will be split into “good” and “bad” banks, with its good assets eventually merged into Bank of Cyprus.
The president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told a press conference in Brussels the deal had “put an end to the uncertainty” around Cyprus’s economy.
Jeroen Dijsselbloem added he was “convinced” the new deal was better for the Cypriot people than the broader measure rejected by the Cypriot parliament last week, as it focused on two problem banks rather than the entire sector.
Laiki Bank, Cyprus’ second-biggest, will be wound down and holders of deposits of more than 100,000 euros will face big losses after Eurogroup agreed on bailout
The deal is good news for Cyprus’s small account holders.
All deposits under 100,000 euros will be secured. But for those with deposits of more than that amount in the country’s two biggest banks – Laiki and Bank of Cyprus – the deal will come as a bitter blow.
The percentage to be levied on large deposits in the Bank of Cyprus will be resolved in the coming weeks, Jeroen Dijsselbloem said.
One key element of the deposit tax, demanded by the IMF, is that it not require a parliamentary vote.
EU Commissioner for Economic Affairs Olli Rehn said that the “depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people”.
Asian financial markets rose in early trading on news of the deal.
The deal came after hours of tense negotiations between Cypriot President Nicos Anastasiades and the “troika” of EU, ECB and IMF leaders.
Nicos Anastasiades had reportedly asked the heads of the troika if they wanted him to quit.
“Do you want to force me to resign?” Cyprus News Agency quoted him as saying, citing sources at the presidential palace.
“I am giving you one proposal, and you do not accept it. I give you another and it’s the same. What else do you want me to do?” Nicos Anastasiades was quoted as saying.
In another development on Sunday, Bank of Cyprus – the island’s biggest lender – further limited cash machine withdrawals to 120 euros a day.
With queues growing outside cash machines across the island, the second biggest lender, Laiki, also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank’s previous limit had been 260 euros per day.
Banks have been closed since Monday and many businesses are only taking payment in cash.
Jeroen Dijsselbloem said that the details of the re-opening of Cyprus’ banks would be discussed on Monday by the Cypriot government and the troika.
There is concern on Cyprus that a levy on large-scale foreign investors, many of whom are Russian, will damage its financial sector.
Cyprus’ Finance Minister Michael Sarris has announced the country has made “significant progress” in talks with the EU and IMF aimed at securing a bailout.
Michael Sarris was also quoted as saying Cyprus was considering a 25% levy on deposits of more than 100,000 euros in its biggest bank.
Cyprus has to raise 5.8 billion euros ($7.5 billion) before Monday to secure a 10 billion-euro loan.
Parliament has approved restructuring the island’s banks, among other moves.
But it rejected a levy earlier this week, before EU pressure brought the proposal back to the table. The rejected proposal included a levy on smaller deposits.
On Saturday afternoon more than 1,000 bank employees marched to the Cypriot finance ministry, stopping briefly at the presidential palace on the way.
Marchers held placards with slogans such as “No to the bankruptcy of Cyprus” and chanted “United we cannot be defeated”.
Michael Sarris was speaking after talks with the “troika” of the EU, the European Central Bank (ECB) and the IMF.
“Significant progress has been made toward an agreement at least with the troika which will report to the Eurogroup,” he said.
“Two or three issues need further work.”
Cyprus has made significant progress in talks with the EU and IMF aimed at securing a bailout
Michael Sarris said experts were now discussing these issues, and the talks would resume later on Saturday afternoon with the aim of finalizing the package.
Cyprus’ President Nicos Anastasiades and party leaders were considering a trip to Brussels depending on the outcome of the meeting.
The Eurogroup, of 17 eurozone finance ministers, will meet to discuss the Cyprus bailout at 18:00 local time on Sunday, its president Jeroen Dijsselbloem tweeted.
The ECB has given Cyprus until Monday to raise the bailout money.
If Cyprus fails, the ECB said it would cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.
Cyprus now needs to find out what money-raising measures the EU will accept before putting them to a vote.
Germany is essentially writing the rules for the eurozone, and the message coming from Brussels and Berlin is that the money has to come from the banking sector and investors who have benefited from high interest rates over recent years.
Germany has voiced opposition to another measure approved by the Cypriot parliament on Friday – nationalizing some pensions to pay into a solidarity fund along with other assets.
Germany has also made it clear that it will no longer accept an economy within the eurozone that is dominated by its status as an economic tax haven, our correspondent adds.
Leading Cypriot bankers have urged parliament to accept a levy, with small savers exempted.
On Tuesday, parliament overwhelmingly rejected a levy that would have made small savers pay 6.75%, while larger investors would have paid 9.9%.
The proposal had provoked widespread anger among both ordinary savers and large-scale foreign investors, many of them Russian.
The government fears a levy would prompt foreign investors to withdraw their money, destroying one of the island’s biggest industries.
Michael Sarris travelled to Moscow this week to seek Russian support for alternative funding methods, but Russia said it would only act after the EU reached a deal with Cyprus.
Among nine bills approved on Friday, Cyprus MPs voted to restructure the banking sector, starting with the second-largest and most troubled lender, Laiki (Popular) Bank.
Under the restructuring, troubled lenders will be split into so-called good and bad banks, protecting smaller deposits but allowing levies on bigger ones.
There is now speculation that the biggest lender, the Bank of Cyprus, will also be restructured.
Parliament also voted for capital controls to prevent large withdrawals from Cyprus.
Banks in Cyprus have been closed since Monday and many businesses are only taking payment in cash.
Anthanasios Orphanides, former governor of the Cyprus Central Bank, said Cyprus was a victim of German domestic political pressures ahead of a general election there later this year.
German Chancellor Angela Merkel and her party needed to avoid being accused of using “German taxpayers’ money to pay off Russian oligarchs”.
European markets follow Asian shares downward on fears that the plan to bailout Cyprus could trigger an escalation of the eurozone debt crisis.
The EU and IMF want all bank customers to pay a levy in return for a bailout worth 10 billion euros ($13 billion).
London’s 100 share index is 1% lower, while France and Italy are down 2%.
The euro was also affected. Against both the pound and the dollar it lost about 1%, leaving it at 85.7 pence and $1.293 repectively.
Earlier, Japan’s Nikkei 225 index fell 2.7%, while Hong Kong’s Hang Seng and Australia’s ASX 200 dipped 2%.
Banking shares were among the hardest-hit, with Italy’s UniCredit losing almost 5%, Intesa Sanpaolo down 4%. Banco Popolare, which announced a bigger-than-expected annual loss on Friday after the market closed, down almost 5%.
France’s BNP Paribas and Credit Agricole were both down more than 3%.
In Germany, Deutsche Bank was down 3.5% while Commerzbank was 1.5% lower.
Analysts said that investors were divided about whether the developments in Cyprus would affect other bigger eurozone economies, which may also need bailout funds in the future.
Some fear that, if approved, the plan may set a precedent for those countries.
Asian shares fall on fears that the plan to bailout Cyprus could trigger an escalation of the eurozone debt crisis
“There will certainly be confusion in Cyprus, and investors looking just at headlines may fret about its case becoming a model,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.Analysts said the fresh concerns over the fate of some of the eurozone weaker members, triggered by the developments in Cyprus, had resulted in investors looking to ditch relatively riskier assets.
This is the first time the 17-nation eurozone has sanctioned dipping into people’s savings to finance a bailout.
The plan is yet to be finalized, but the news of the deal caused a rush to the cash machines in Cyprus as people tried to withdraw money.
Under the levy, bank customers with less than 100,000 euros would have to pay 6.75%, while those with more than 100,000 euros would pay 9.9%.
However, depositors in Cypriot banks outside the country, including in Greece, are unaffected by the levy.
But the plan is yet to be finalized and Cyprus’s leaders have said they want to ensure protection for small investors.
Meanwhile, an emergency session of the Cypriot parliament has been postponed until later on Monday.
Also, Germany must approve the plan, but is not due to vote until next month.
Following eurozone finance ministers’ negotiations last week, Cyprus became the fifth euro-area country to get a bailout to save its banks, which suffered significant losses because of their exposure to Greek debt.
Cyprus’ President Nicos Anastasiades has said a big bailout, which has provoked mass public anger, was needed to avoid a “disorderly bankruptcy”.
The 10 billion-euro ($13 billion) deal agreed by the EU was “a painful but controlled management of the crisis”, he said.
Many Cypriots, shocked that the bailout imposes a levy on bank deposits of up to 10%, were seen queuing to withdraw cash.
The parliament is due to meet later on Sunday to vote on the measure.
Nicos Anastasiades’ Democratic Rally party – which has 20 seats in the 56-member assembly – needs support from other factions to ratify the bailout.
The deal – reached with eurozone partners and also the IMF in Brussels late on Friday – marks a radical departure from previous international aid packages.
In a statement on Saturday, President Nicos Anastasiades described the deal as choice between the “catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis”.
The president said that thousands of small businesses would have gone bankrupt without the agreement.
Nicos Anastasiades, who was elected last month on a promise to tackle the country’s debt crisis, is due to address the nation later on Sunday.
Nicholas Papadopoulos, who heads the parliamentary financial committee, said his initial reaction to the bailout deal was “shock”.
“This decision is much worse than what we expected and contrary to what the government was assuring us, right up until last night [Friday],” Nicholas Papadopoulos told Reuters.
Many Cypriots, shocked that the bailout imposes a levy on bank deposits of up to 10 percent, were seen queuing to withdraw cash
Meanwhile, opposition leader George Lillikas has urged his supporters to stage a protest rally on Tuesday, saying that the president “had betrayed the people’s vote”.People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said after agreeing the deal.
Those with greater sums will pay 9.9% in tax.
Depositors will be compensated with the equivalent amount in shares in their banks.
Reports suggest that depositors will be able to access all of their money except the amount set by the levy.
The levy itself will not take effect until Tuesday, following a public holiday, but action is being taken to control electronic money transfers over the weekend.
Co-operative banks, the only ones which were open in Cyprus on Saturday, closed after people started queuing to withdraw their money.
At one bank in the Limassol district, a frustrated man parked his bulldozer outside and threatened to break in.
According to Reuters news agency, almost half of the depositors in Cyprus are believed to be non-resident Russians.
Russians reacted angrily to the news of the levy on social media.
International lenders are gambling that the risk of a bigger banking crisis elsewhere in the eurozone has receded.
While Cyprus may be one of the eurozone’s tiniest economies – its third-smallest – there could be serious repercussions for other financially over-stretched economies, such as those of Spain and Italy.
The point of the levy is to warn lenders to banks that they should take care where they place their funds, and avoid banks that overstretch themselves – as Cypriot banks did.
Cyprus is the fifth country after Greece, the Republic of Ireland, Portugal and Spain to turn to the eurozone for financial help during the region’s debt crisis.
The country has been in financial difficulties since the collapse of the Greek economy, where Cypriot banks had huge investments.
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