NICOSIA, (Reuters) – Cyprus is expected to make a dramatic U-turn today to avert the imminent threat of financial meltdown, having signalled it is willing to tax big savers in its stricken banks to clinch a bailout from the European Union.
The island’s partners in the 17-nation euro zone scheduled a meeting for tomorrow in Brussels, in a strong sign they believe a solution is near.
As hundreds of demonstrators faced off with riot police outside parliament late into Friday night, lawmakers inside voted to nationalise pension funds, pool state assets for a bond issue and peel good assets from bad in stricken banks.
Officials said a deal was imminent to raise 5.8 billion euros demanded by the EU in return for a 10 billion euro ($13.00 billion) lifeline, including some kind of levy on bank deposits, which could be voted on as soon as today.
Without a deal by Monday, the European Central Bank has threatened to cut off cash for Cypriot banks, spelling certain collapse and possible ejection from the euro. Cyprus moved perilously close to bankruptcy when its parliament threw out the proposed levy on Tuesday, with Cypriots enraged by plans to hit small holdings of ordinary savers as well as large accounts, many held by foreign investors.
In the absence of the bank levy, Nicosia turned to Russia, whose citizens have billions of euros at stake in Cyprus’s outsized banking sector. But Finance Minister Michael Sarris returned from Moscow empty-handed. Yesterday he said the bank levy was back “on the table”.
Party officials told Reuters that discussions were centred on a levy on depositors holding over 100,000 euros, sparing smaller savers. One official said the tax could be limited to big savers at the island’s biggest lender, Bank of Cyprus , at a 20 percent rate.
Lawmakers adopted a bill that would pave the way for the government to split its failing lenders into good and bad banks. The measure is likely to target Bank of Cyprus and No. 2 lender Cyprus Popular Bank, also known as Laiki, and would make it easier for the government to safeguard deposits that enjoy a state guarantee of up to 100,000 euros.
“With the process of consolidation, the depositors over 100,000 euros will wait for several years to see how much of their deposits they will collect,” said Averof Neophytou, deputy leader of the ruling Democratic Rally party.
“At the same time, this political decision to support this harsh law safeguards 100 percent of the deposits of 361,000 depositors in Laiki Bank,” he added, referring to depositors with up to 100,000 euros.
In Finland, an ally of Germany in disciplining euro zone partners, European affairs minister Alexander Stubb told Reuters he was confident Cyprus would accept EU rescue terms “because there are no other options”.
The pace of the unfolding drama has stunned Cypriots, who barely a month ago elected conservative President Nicos Anastasiades on a mandate to secure a bailout.
