CYPRUS’S FINANCE MINISTER is travelling to Moscow today to discuss the possibility of a major loan from the Russian government, after the national parliament rejected a €10 billion bailout from the EU and IMF which involved a controversial tax on bank balances.
Finance minister Michalis Sarris – who yesterday revealed he had offered his resignation over the calamitous EU-IMF bailout deal, only to have it rejected – will meet his Russian counterpart Anton Siluanov.
The controversial deposit tax, an unprecedented part of Cyprus’s aid package, would have been a particular blow to Russian investors who are known to use the island as an offshore banking venue.
Cyprus already received a €2.5 billion loan from Russia two years ago, and has been looking to renegotiate the repayment terms and schedule on this loan. The rebuff of the EU-IMF’s €10 billion in new loans, however, could see Nicosia look to sound out the possibility of a larger second loan.
President Nicos Anastasiades will meanwhile hold an emergency meeting of party leaders to try and concoct a ‘Plan B’ after the parliament rebuffed the European plan – with even the 19 MPs from Anastasiades’s own Democratic Rally party choosing to abstain from the parliamentary vote.
Anastasiades said he ‘fully respected’ the parliamentary decision, and last night held a phone conversation with Russian president Vladimir Putin to discuss a potential response.
Cyprus’s banks remain closed today – after an emergency bank holiday was declared for yesterday, following a more regular one on Monday – as authorities fear a run on deposits by worried householders trying to stop themselves from facing a future levy on their deposits.
The president of the Eurozone’s body of 17 finance ministers, Dutch minister Jeroen Dijsselbloem, issued a terse statement following the Cypriot vote merely confirming that the European deal remained on the table.
His German counterpart Wolfgang Schauble expressed greater dismay, and said a rescue plan for Cyprus could only work if it offered a credible way for Cyprus to “regain access to financial markets”.
“For now the debt is too high,” Schauble told a TV interview. “It must be reduced.”
Cyprus’s two main banks suffered badly when the Greek government partially defaulted on its loans last year, and now have a major capital shortfall.
The controversial banking levy, which was due to raise about €5.8 billion, would have raised enough funds to recapitalise the two banks. Depositors would have been given shares in the banks as compensation for their lost deposits.
A further €1.2 billion would have been raised by burning junior bondholders at those banks.
To embed this post, copy the code below on your site
have your say