Cyprus

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Bank holiday in Cyprus till next week...

Cyprus banks shut until Tuesday amid scramble for Plan B
20 March 2013 - Cypriot officials have said the country's banks, which were closed to prevent mass withdrawals, will remain shut until at least Tuesday.

On Wednesday afternoon the cabinet began an emergency meeting to discuss alternatives to an EU-IMF bailout deal rejected by parliament on Tuesday. Reports say the government is considering imposing capital controls when banks are reopened. Meanwhile, Cyprus' finance minister is in Moscow to seek help from Russia. Russia holds multi-billion dollar investments in Cyprus.

Finance Minister Michalis Sarris said after talks with Russian Finance Minister Anton Siluanov: "There were no offers, nothing concrete," but he added, "we're happy with a good beginning." Talks are expected to continue in Moscow on Thursday. The banks will remain shut on Thursday and Friday this week and Monday 25 March is a scheduled bank holiday. The stock exchange also remains closed. Germany has said banks in Cyprus may never reopen if a bailout is not agreed.

'Not sustainable'

Earlier, Cypriot President Nicos Anastasiades met party leaders and the central bank governor in Nicosia to hammer out a Plan B, after a one-off tax on savings failed to get the support of any MPs. Mr Anastasiades has also been talking to the European Union, European Central Bank and International Monetary Fund (IMF). Bank mergers, a bond issue and more Russian funding have all been mentioned as ways to help the country out of the crisis.

The establishment of a "bad bank" which would take on risky assets held by Cypriot banks has also been mentioned by officials. The BBC's Mark Lowen, in Nicosia, says Cyprus' banks are still giving out cash through machines - although with limits, and some are running low. Some businesses are now refusing credit card payments, our correspondent reports.

On Wednesday, German Chancellor Angela Merkel said she regretted but respected the Cypriot vote. She said the eurozone had a duty to find a solution for Cyprus, but added that the country's current banking system was "not sustainable". Cyprus' banks were left exposed following the debt crisis in Greece and there are fears Cyprus could go bankrupt if they fail. German Finance Minister Wolfgang Schaeuble warned Cyprus that its banks might never be able to reopen if it rejected the bailout.

'Honest discussion'

 

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Granny says, "Dat's right - the financial sky startin' to fall...

What happens if Cyprus collapses?
Mar 23,`13 -- What happens if Cyprus' banks collapse? If its government goes broke? If it leaves the euro?

The European Union, the International Monetary Fund, the European Central Bank and the country's leaders are trying to find a deal to secure a 10 billion euro ($13 billion) loan for Cyprus and stave off a failure of its banking system. The Cypriot parliament has already rejected one deal, which would have taxed all bank deposits in the country. The ECB has now put a ticking timer on this drama by declaring it would cut off emergency support to Cyprus' banks on Monday if no deal is found. That's the worst case. Even if a deal is found, the messy decision-making over the past week will have shaken confidence in Cyprus and the euro currency union itself. Here's what's at stake.

CYPRUS

The consequences for Cyprus itself could be so rough that many analysts think some kind of deal will be struck. If not:

The only thing keeping Cyprus' banks afloat right now are short-term loans from the Cypriot central bank with the blessing of the ECB. The banks need this special funding because they can't borrow normally. They don't have good enough collateral to receive normal loans from the ECB, and others are reluctant to lend to them for fear of not getting their money back. The emergency lending program isn't publicly declared, but analysts say the Cypriot central bank has already handed out around 9 billion euros ($11.6 billion). If the ECB pulls the plug, the Cypriot banks would probably not be able to open their doors, or would very quickly collapse because they wouldn't be able to satisfy the likely rush of customers pulling their money out. Then the banking system enters a sort of twilight zone - with the banks closed, there can be no real run on the banks, but salaries won't be paid, mortgage payments won't go through, electricity bills will linger.

After the banks, the next logical step is that the government goes bankrupt, either as it tries to shore up the banking system or because it is on the hook for insuring all deposits under 100,000 euros ($130,000). The resulting disaster cannot be predicted clearly - and shouldn't be underestimated. The road could lead to an utter breakdown not just of the economy, but of the country's social fabric. Some economists say that as euros become scarce, Cyprus may have to issue some sort of IOUs for people to buy basic necessities. That could lead to hyperinflation, in which the prices of goods double and triple regularly. The country might have to prevent cash from leaving its borders. People may turn to barter. Commerce will slow or grind to a halt.

The country could leave the euro, and no one really knows what happens then. It's such a terrifying possibility for Cyprus and Europe that some analysts think the EU will step in at some point to prevent it from happening, even if most of the damage to Cyprus is already done. "The euro area doesn't want a failed state in Cyprus," said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington. "Once the disaster happens, I would actually imagine that the euro area would be relatively lenient with respect to engaging in a new program."

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Mebbe dey worked out a deal where the Russians would get their money back?...

ANALYSIS: Russia tones down anger over Cyprus — but why?
Mon, Apr 01, 2013 - CHANGE OF HEART: Putin was breathing fire over the country’s first bailout deal, but he has not made any criticism over the current one, which raises questions

When the terms of the first and now abandoned EU bailout deal for crisis-stricken Cyprus were announced, Russian President Vladimir Putin bared his fangs to describe the proposal as “unfair, unprofessional and dangerous.” Russians have billions of euros deposited in Cyprus banks — some, but by no means all, in illegal tax evasion scams — and the 10 percent mooted levy on all bank deposits risked them losing chunks of their money. However, when a week later Cyprus and its EU partners agreed a different bailout deal that some analysts believe may prove just as costly for Russians, Putin did not make the slightest criticism and instead suggested Russia could ease the terms of a 2.5 billion euro (US$3.21 billion) loan to Cyprus. The Kremlin’s sudden change in tack raised a range of questions about the murky world of Russian money in Cyprus and the effect of the Cyprus bailout deal on the Russian economy.

The terms of the second deal were significantly different to the first. Rather than taking 10 percent from all deposits in all Cypriot banks, the levy was substantially increased, but restricted to just two banks, Bank of Cyprus and Laiki. Crucially, this excluded Russian Commercial Bank, which is the Cypriot unit of Russian state-controlled bank VTB, as well as other Russian-owned entities where Russian funds are concentrated. “A key positive for us was that no Russian bank was part of the solution,” Renaissance Capital chief economist Ivan Tchakarov said. Standard and Poor’s said that in the end, the terms of the bailout will have a “relatively marginal impact on the consolidated financials of rated Russian banks with a presence in Cyprus.” Nevertheless, Russian depositors are sure to sustain losses and also be hit by the capital controls imposed by Cyprus.

According to the Vedomosti daily, Putin’s initial fury was as much irritation at not being consulted by the EU about the first deal as concern about its economic consequences. The precise value of Russian deposits in Cyprus is disputed with estimates ranging from between 5 billion and 25 billion euros. Standard and Poor’s believes that the majority of the non-resident deposit base in Cyprus, which totaled 21 billion euros as of Jan. 31, came from Russia and other ex-Soviet states. Neil Shearing at Capital Economics said that even under the new bailout, Russian investors could lose 5 billion euros, but he said that even this is “fairly small in the grand scheme of things” and unlikely in itself to have a major impact on the Russian economy. However, there could be a more significant indirect effect, especially due to the imposition of capital controls, he emphasized in a note to clients.

The Russian government would like it to come home. Russian Deputy Prime Minister Igor Shuvalov said the crisis was proof of solidity of the Russian banking system compared with some of its partners and was a “good signal” to encourage Russians to invest more at home. However, a substantial reverse flight is hardly likely. “Russians keep part or all of their wealth abroad for a variety of reasons and while the Cyprus experience is not a good one ... there are plenty of other hubs out there,” Tchakarov said. Hong Kong and the Netherlands — which has a relaxed tax regime — have been cited as possible destinations for Russian deposits, as well as the Baltic states, in particular Latvia. Latvian media reports have said Riga has already been warned by the European Central Bank that accepting Russian money from Cypriot offshores would harm its chances of joining the euro, but Latvia’s finance minister has said there is just a “very, very minor inflow” of Cyprus money.

More ANALYSIS: Russia tones down anger over Cyprus ? but why? - Taipei Times

See also:

In Cyprus, The Bank Run That Wasn't
March 29, 2013 — In the end it was hardly even a stroll, let alone the widely predicted run on the banks of Cyprus.

Commentators had been confident that as soon as the banks reopened on Thursday at noon after Cyprus signed a rescue deal with the European Union to stave off national bankruptcy, there would be scenes of chaos. The experts were right, but it wasn't the Cypriots causing the pandemonium. Television crews from around the world crowded into tiny Eleftheria Square in central Nicosia, the convenient location of two of the capital's main banks. If there were a dozen Cypriots waiting patiently to make a withdrawal, there were probably twice as many cameramen, each one as frenzied as the local people were calm. Reasons for this fortitude are not hard to find in conversations with residents of Nicosia, a sunny and welcoming city with a vibrant cafe culture.

The Greek Cypriots describe themselves as more laid back than their cousins in Greece, where the reaction to the austerity decreed in their own EU rescue deal was mayhem on the streets of Athens. While a bomb did explode on the day the Cyprus banks ended their two-week closure, the explosion actually happened in Greece. Cypriots say that they have endured worse, harking back to the war in 1974, when the island was divided after a Turkish military invasion. Jean Kelly-Christou, editor-in-chief of the Cyprus Mail, the island's oldest newspaper, said people were drawing on the lessons of the economic crisis that followed the war. "I think most people are being pragmatic about it and understand that demonstrations and anger might make things worse," said Kelly-Christou, who is Irish.

Strict Regime

A strict regime of restrictions on bank transactions, including a daily limit of 300 euros on withdrawals, has been imposed this week, in what is commonly described as an unprecedented move. Unprecedented in the short history of eurozone bailouts perhaps - but Cypriots recall they had to endure years of currency controls after the 1974 war. In any case, much of the anger in Cyprus was probably expended before the deal was done in Brussels on Monday. An initial version envisaged levying a tax on all bank deposits, large and small, and that infuriated small savers on the island. The final agreement, which only hit those with more than 100,000 euros in the bank, was better received.

The restrictions on bank transactions may also have helped calm the mood. After all, if people can't withdraw more than 300 euros a day, it is difficult to have a full-scale bank run. Most people do not have 100,000 euros in the bank in any case and were taking comfort from the fact that deposits below that level are protected by insurance. Many of those waiting in line for the banks to reopen were in fact elderly people who had run short of ready cash. They said they were uncomfortable with bank cards and so unable to use the ATMs that had remained in operation throughout. Others probably realised that they had just as much chance of getting their money later rather than on day one. "We were planning to take our money out but we're going to wait ... it's going to be chaos today," Constantina Economidou, a civil servant, said on Thursday.

High Finance