The Telegraph – by Richard Spencer, Nicosia, Bruno Waterfield in Brussels, Tom Parfitt in Moscow and Alex Spillius
Unless the island signs off on a radical debt-cutting programme, the
ECB will on Monday withdraw “emergency liquidity assistance” leading to
the immediate collapse of the two largest Cypriot banks and a financial
crash in Cyprus.
It has also emerged that talks over Cyprus leaving the EU’s single
currency took place on Wednesday night between senior finance officials
who have drawn up plans for capital controls to prevent a meltdown of
the eurozone’s financial system.
In minutes seen by Reuters of a telephone conference that Cyprus
refused to take part in, one senior ministry official described emotions
as running “very high” and “open talk in regards of (Cyprus) leaving
the euro zone”.
The officials, heads and deputy heads of the eurozoneﾒs finance ministries
discussed draconian capital controls to “ring-fence” the rest of the
eurozone from the impact of Cyprus leaving the euro and to ensure there
was no contagion.
Fears were raised of large outflows of capital once Cypriot banks
reopen on Tuesday with ﾓtechnical preparations” being made to try to
limit capital flight.
“Some additional laws need to be passed. Overall we are in a very
difficult situation,” said one official. “(We’re) trying to do
everything within the powers to limit any unauthorised outflows.”
The chairman of the ﾓeuro working group, Thomas Wieser, an Austrian, warned: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Cypriot banks are totally reliant on the ECB for funding and have taken over €9.1 billion in an emergency programme to ensure cash does not run out.
“The governing Council of the ECB decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013,” the bank said in a statement.
“Thereafter, ELA could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”
Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of eurozone ministers, warned that Cyprus poses a “systemic risk” to Europe’s economy and banking sector, meaning a bank meltdown there could plunge other European countries into a new crisis.
“In the present situation I think there is definitely a systemic risk and I think the unrest of the last couple of days has proven this, unfortunately,” he said.
He told Cyprus that it would have to carry out a raid on Russian bank depositors to pay off €6 billion in debts and insisted that new loans from Russia would not solve the Cyprus debt problem, only add to it.
“The Cypriot government is now talking to the Russian government whether more can be done, I don’t know the outcome of that yet,” he said.
“The only thing I can say that if the Russians were to say we could lend, that wouldn’t help on the sustainability of the debt situation. Building up the debt in Cyprus does not help them to work towards a new future.”
Dmitry Medvedev, the Russian Prime, attacked plans to raid large Russian depositors in Cypriot banks as “absurd” and demanded that Moscow was involved in eurozone talks.
“This scheme that is being discussed on Cyprus now looks absolutely absurd,” he said.
“I think that in any case the Eurogroup could examine a future plan of regulating Cyprus with the participation of all the interested sides, including Russian structures.”
Mr Medvedev threatened an all-out currency war with the euro by saying that Russia may need to review the share of euros it holds in its central bank reserves, cash totalling around €175 billion.
“We have 41 or 42 per cent of our reserves denominated in euros – that is a lot of money, but for us, as for any country, predictability is important, and the offer that was made is not just unpredictable, it is evidence of some lack of rationality,” he said.
“A large number of our open public structures work through Cyprus. They now have money blocked for reasons that are unclear, because the source of that money is obvious. This money is declared everywhere. These include government structures. That’s why we have to take quite a firm position on the events around Cyprus and regulating the debt of Cyprus.”
Michael Sarris, the Cypriot Finance Minister, is in Moscow since Tuesday seeking to negotiate a deal to sell Cyprus newly discovered natural resources and remaining bank assets.
“We are discussing the subjects of gas, bank cooperation and other subjects,” he said.
Cyprus is angering the EC and eurozone by resisting a plan – originally advocated by Finland and Germany – to merge its two largest and most troubled banks, Laiki and Bank of Cyprus.
The plan, billed as the “Icelandic solution”, would create a new safe bank that would carry all deposits of under 100,000 euros, including the savings of thousands of Briton, and a “bad bank” with larger investments.
Cyprus opposed the scheme because it would put large uninsured deposits into the bad bank, wiping many out, hurting Russians and destroying the island’s reputation as an offshore banking haven.
Thousands of British pensioners are caught in the middle of the three-way battle between Cyprus, the EU and Russia as the authorities drew up plans to prevent them taking their money out of the country.
The finance ministry announced that the country’s banks would remain closed until Tuesday as it proposed measures to impose capital controls, limiting the amount of money depositors could remove.
The proposals, which could have severe consequences for the 60,000 Britons on the island – including around 20,000 pensioners – came as politicians struggled to forge a new deal to replace the EU bank levy, which was voted down by parliament.
Designed to prevent a run on the banks once they open, the move posed a particular threat to the savings of expatriates. About €2 billion (£1.7 billion) is held by British citizens and companies on the island, the second highest amount of any EU country behind Greece.
The chairman of the ﾓeuro working group, Thomas Wieser, an Austrian, warned: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Cypriot banks are totally reliant on the ECB for funding and have taken over €9.1 billion in an emergency programme to ensure cash does not run out.
“The governing Council of the ECB decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013,” the bank said in a statement.
“Thereafter, ELA could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”
Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of eurozone ministers, warned that Cyprus poses a “systemic risk” to Europe’s economy and banking sector, meaning a bank meltdown there could plunge other European countries into a new crisis.
“In the present situation I think there is definitely a systemic risk and I think the unrest of the last couple of days has proven this, unfortunately,” he said.
He told Cyprus that it would have to carry out a raid on Russian bank depositors to pay off €6 billion in debts and insisted that new loans from Russia would not solve the Cyprus debt problem, only add to it.
“The Cypriot government is now talking to the Russian government whether more can be done, I don’t know the outcome of that yet,” he said.
“The only thing I can say that if the Russians were to say we could lend, that wouldn’t help on the sustainability of the debt situation. Building up the debt in Cyprus does not help them to work towards a new future.”
Dmitry Medvedev, the Russian Prime, attacked plans to raid large Russian depositors in Cypriot banks as “absurd” and demanded that Moscow was involved in eurozone talks.
“This scheme that is being discussed on Cyprus now looks absolutely absurd,” he said.
“I think that in any case the Eurogroup could examine a future plan of regulating Cyprus with the participation of all the interested sides, including Russian structures.”
Mr Medvedev threatened an all-out currency war with the euro by saying that Russia may need to review the share of euros it holds in its central bank reserves, cash totalling around €175 billion.
“We have 41 or 42 per cent of our reserves denominated in euros – that is a lot of money, but for us, as for any country, predictability is important, and the offer that was made is not just unpredictable, it is evidence of some lack of rationality,” he said.
“A large number of our open public structures work through Cyprus. They now have money blocked for reasons that are unclear, because the source of that money is obvious. This money is declared everywhere. These include government structures. That’s why we have to take quite a firm position on the events around Cyprus and regulating the debt of Cyprus.”
Michael Sarris, the Cypriot Finance Minister, is in Moscow since Tuesday seeking to negotiate a deal to sell Cyprus newly discovered natural resources and remaining bank assets.
“We are discussing the subjects of gas, bank cooperation and other subjects,” he said.
Cyprus is angering the EC and eurozone by resisting a plan – originally advocated by Finland and Germany – to merge its two largest and most troubled banks, Laiki and Bank of Cyprus.
The plan, billed as the “Icelandic solution”, would create a new safe bank that would carry all deposits of under 100,000 euros, including the savings of thousands of Briton, and a “bad bank” with larger investments.
Cyprus opposed the scheme because it would put large uninsured deposits into the bad bank, wiping many out, hurting Russians and destroying the island’s reputation as an offshore banking haven.
Thousands of British pensioners are caught in the middle of the three-way battle between Cyprus, the EU and Russia as the authorities drew up plans to prevent them taking their money out of the country.
The finance ministry announced that the country’s banks would remain closed until Tuesday as it proposed measures to impose capital controls, limiting the amount of money depositors could remove.
The proposals, which could have severe consequences for the 60,000 Britons on the island – including around 20,000 pensioners – came as politicians struggled to forge a new deal to replace the EU bank levy, which was voted down by parliament.
Designed to prevent a run on the banks once they open, the move posed a particular threat to the savings of expatriates. About €2 billion (£1.7 billion) is held by British citizens and companies on the island, the second highest amount of any EU country behind Greece.
No comments:
Post a Comment