THE EUROZONE’S finance ministers will meet for a last-ditch summit in Brussels today – where they will essentially decide whether Cyprus gets a bailout or will be forced to leave the euro.
An emergency meeting has been convened for 5pm Irish time, where ministers will decide whether the ‘Plan B’ measures pursued by the Cypriot government are enough to merit a €10 billion bailout loan from the EU and IMF.
Over the weekend, Cyprus’s parliament has passed measures to create a new ‘solidarity fund’ – where private and public pensions, natural resources, and public and church properties could be used as collateral for foreign loans.
MPs are also still deliberating over a controversial levy on bank deposits – which could see a 25 per cent levy on bank balances over €100,000 – in an effort to make upsome of the €7.2 billion that Cyprus will itself need to supply in order to secure the European loans.
That levy could, however, bear the wrath of the Russian government – who see any levy on high savers as a direct attack on the Russian investors who regularly use Cyprus as an offshore banking venue. A significant minority of deposits in Cypriot banks are held by Russians.
A further complication is the competing claims of the Turkish administration in Northern Cyprus, which claims ownership of half of the oil and gas reserves that may be off the island’s waters – with Turkey demanding talks between the competing Greek and Turkish administrations on the island before oil or gas rights are offered to secure a bailout.
If a deal to lend to Cyprus is not confirmed this evening, it is virtually certain that Cyprus will be forced to leave the single currency: the European Central Bank has said it will stop offering emergency funding to Cyprus’s banks tomorrow if a deal is not in place by Monday.
The ECB only offers emergency lending to banks which remain fundamentally solvent – a criterion which neither of Cyprus’s two biggest banks can now fulfil, having suffered major losses when Greece partially defaulted on its loans last year.
While tomorrow is a bank holiday in Cyprus, meaning banks would not be open anyway, an immediate decision on whether Cyprus will stay or go is required before banks elsewhere in the Eurozone open tomorrow morning, given the doubts that will emerge over the currency in the meantime.
Authorities fear that any major panic over Cyprus’s financial future could spill over and affect the borrowing costs of the Spanish or Italian governments – countries which are considered ‘too big to bail’ if they find themselves unable to borrow on the open markets.
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