Can Cyprus's Sacrifice Save the Eurozone?

Justine Frangouli-Argyris
The Huffington Post


Cyprus' decision to reject outright the Eurogroup's demands that it tax its bank deposits may have been a slap in the face for Europe but it was also a clear message to the leaders of the eurozone that enough is enough.
The island nation now faces a difficult task in finding a solution that will keep its economy afloat, requiring it to become very creative in order to determine some way of escaping from an impasse that threatens it with economic and political bankruptcy.
Will it be by means of a loan from Russia, convincing the Kremlin to bet blindly on the country's yet to be determined natural gas reserves? Will the government opt to raid some state pension or insurance funds that have already been contributing their share by buying up large sums of national bonds? Will the Europeans back down and ultimately agree to some alternative bailout deal that leaves savings untouched?
The saga began late last week with the shocking revelation that, in order for Cyprus to receive a bailout package of 10 billion euros, its European allies demanded it pony up 5 billion of its own by seizing up to 10 percent of all funds held in its banks. The inability of the Eurogroup to comprehend the longer term consequences of this "one-time" arrangement quickly sent shock waves through the markets, leaving every bank account vulnerable and bringing Europe's economic crisis to the forefront once again.
How could German Finance Minister, Wolfgang Schäuble, fail to see that this decision would inflict still another, perhaps even more serious, blow to Europe's financial credibility? Would it not stand to reason, if accounts in Cyprus could suddenly be taxed overnight, that those of other banks in the troubled southern periphery could just as easily be confiscated? Who could assure the Greeks, Italians, Portuguese and Spaniards that, they too, would not wake up one morning to discover their earnings had vanished?
The Europeans argue that they insisted on this extraordinary haircut in order to diminish the size of the Cypriot banking sector, claiming it to be totally disproportionate to the rest of the economy at five times its gross domestic product. Perhaps they forgot to take mention of the fact that Luxembourg's banks happen to weigh in at a much heftier twenty times GDP.
They also hint at the fact that the measure was one way of dealing with shadowy Russian oligarchs' holdings and other dubious funds that have found their way to Cyprus since the collapse of the Soviet Union and which may represent up to one third of all deposits. Are the Europeans simply unaware that Russians send over $50 billion overseas every year and that much of these funds go to other eurozone members' banks such as those in Austria and the Netherlands?
Tepid excuses aside, the Cypriot situation appears to be nothing other than more brutal punishment inflicted on the countries of Southern Europe by their northern neighbors in their quest for profit. For, who is it that continues to benefit from this persistent so-called European economic crisis? Is it not the Germans who are able to borrow huge sums at negative interest rates, enjoy a booming export sector as a result of a weak euro and dictate the terms and conditions to which all other members must adhere?
The President of the Republic of Cyprus, however, newly-elected Nikos Anastasiadis, was not one to back down, drawing a line in the sand and standing up for his southern brothers. Did he string the Europeans along, all the while knowing that Cyprus' parliament would never pass such humiliating legislation? Did he play them for fools, rejecting the more "acceptable" proposal of little or no tax on smaller sums knowing that Mr. Schäuble would come back, pleading with him to reconsider?
Yes, it appears that Mr. Anastasiadis traveled to Brussels very well aware and very well prepared. In a matter of a few short hours, he was able to heap ridicule on his northern creditors, who, for a trivial 5 billion, showed, once again, a willingness to put greed above the unity of a continent. Time and history will prove just how good a chess player he is and that if his country is the one that dared take on much bigger fish and succeeded in halting the unraveling of the eurozone.

Multiculturalism or Ethnophobia?

Justine Frangouli-Argyris

Huffington Post


An article titled "Multiculturalism's An Outdated Insult" recently appeared concurrently in Toronto's English-language newspaper, The Globe and Mail, as well as in Montreal's French-language daily, La Presse. Penned by Leo Housakos, a Canadian Senator of Greek descent, the item brought the ever-controversial issue of multiculturalism in Canada into the spotlight once again.
In his discourse, Mr. Housakos accuses successive Canadian governments, both Liberal and Conservative alike, that the approach they have taken with respect to multiculturalism over the last 50 years "is a political strategy to buy ethnic votes that has become a state-financed marketing program."
He notes, that despite good intentions, "although we Conservatives refer to it as "outreach" to the ethnic communities, I'm afraid we're continuing the Liberals' policy of profiling Canadians based on race, colour and religion."
Appointed by current Conservative Prime Minister Stephen Harper to the upper house of Canada's Parliament in 2008, Senator Housakos, an integral part of Montreal's Greek community for many years, surprisingly denounces multiculturalism as a "political marginalizing of ethnic communities."
Is this a valid argument? Does the concept truly relegate ethnic communities to second-class status or is multiculturalism the vehicle they can use to better intregrate into the large mosaic that is Canadian society?
To fully understand it, multiculturalism must be looked at from its beginnings in 1971 when Liberal Prime Minister Pierre Trudeau proclaimed it a national policy of the country and declared that Canada would recognize and respect its society, including its diversity in languages, customs, religions and so on.
In 1982, Trudeau would go on to repatriate the Canadian constitution from Great Britain and formalize a Canadian Charter of Rights and Freedoms, entrenching multiculturalism therein under section 27.
Six years later, in 1988, Conservative Brian Mulroney would bring into law the Canadian Multiculturalism Act, affirming that his government would ensure that every Canadian receives equal treatment and that it would respect and celebrate diversity. In the Act, the government also pledges to recognize:
1) Canada's multicultural heritage and to ensure this heritage is protected;
2) aboriginal rights;
3) English and French as the official languages but that other languages may be used;
4) equality rights regardless of colour, religion or otherwise;
5) minorities' rights to enjoy their cultures.
There can be no doubt that the forward-looking Pierre Trudeau took a landmark step, perhaps the most important, in unifying Canada's diverse population. In the vast, far-flung country, spread between an English-speaking majority, a significant French-speaking minority, numerous aboriginal Indian tribes and a large immigrant population, Trudeau knew full well that there could be no room for a "Canadianization" along the lines of the "melting pot" example set by the United States.
Historically, Canada's attempts at assimilation, given its large French populace that comprises one-quarter of the country, were abandoned long ago with the implementation of the Quebec Act in 1774 granting quasi-equal status rights to the French-speaking community.
Ever since, Canada has been known as a nation that welcomes all ethnic communities. Instead of alienating the immigrants, Trudeau, among others, encouraged them to use their native languages and promote their cultures, thereby enabling them to maintain their ethnic identity.
As such, the policy of multiculturalism has become a basis for facilitating the integration of all newcomers into the Canadian fabric. For example, the government assists ethnic groups with the building of their community centers, schools and nursing homes, thereby, in effect, sponsoring places which are used to celebrate their diverse cultures.
How can these be considered initiatives that marginalize, stigmatize or isolate ethnic Canadians? On the contrary, these must be commended as measures that respect the roots and background of everyone and should be looked upon as attempts to open all to the great opportunities afforded by this vibrant nation.
Having immigrated to Francophone Montreal some 24 years ago and having lived and worked alongside its large Anglophone and multi-ethnic components, I have witnessed multiculturalism at its best. Be it through support for the Jewish Segal Theatre, the DaVinci Italian Cultural Centre or the Hellenic Studies Chair at McGill University, multiculturalism enables Montreal to bask in the glow of its multi-ethnic richness.
Perhaps Senator Leo Housakos, who believes that being called a Greek-Canadian is an insult, should revisit the issue once more before transmitting a virus of ethnophobia to coming generations!

Cyprus aligns with sponsors, slaps creditors!!!

Cyprus lawmakers reject bank tax; bailout in disarray

By Michele Kambas and Karolina TagarisPublished on March 19, 2013

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NICOSIA, March 19 (Reuters) - Cyprus's parliament overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing euro zone efforts to rescue the latest casualty of the currency area's debt crisis into disarray.

The vote by the small state's legislature was a stunning setback for the 17-nation euro zone, after lawmakers in Greece, Portugal, Ireland, Spain and Italy had repeatedly accepted unpopular austerity measures over the last three years to secure European aid.
The rejection, with 36 votes against, 19 abstentions and one absence, brought the east Mediterranean island, one of the smallest European states, to the brink of financial meltdown.
EU countries said before the vote that they would withhold 10 billion euros ($12.89 billion) in bailout loans unless depositors in Cyprus shared the cost of the rescue, and the European Central Bank has threatened to end emergency lending assistance for teetering Cypriot banks.
But jubilant crowds outside parliament broke into applause, chanting: "Cyprus belongs to its people."
"The voice of the people was heard," said Andreas Miltiadou, a 65-year-old pensioner among the demonstrators.
Newly elected President Nicos Anastasiades earlier told reporters he expected parliament to reject the tax on bank deposits, "Because they feel and they think that it is unjust and it's against the interests of Cyprus at large."
Europe's demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts sparked outrage among Cypriots and unsettled financial markets.
Anastasiades refused to accept a levy of more than 10 per cent on deposits above 100,000 euros, which meant taxing smaller accounts too. That would have hurt ordinary savers with deposits that they thought came with a state guarantee.
Cypriot Finance Minister Michael Sarris flew to Moscow on Tuesday to seek Russian financial assistance. He denied by text message reports that he had resigned, which rattled nerves as lawmakers were poised to vote.
Stunned by the backlash, euro zone finance ministers urged Nicosia on Monday to avoid hitting accounts below 100,000 euros, and instead increase the levy on big accounts, which are unprotected by the state deposit guarantee.
The European Union and International Monetary Fund are demanding Cyprus raise 5.8 billion euros from depositors to secure its bailout, needed to rescue its financial sector.
A revised draft bill would have exempt savings under 20,000 euros from the planned 6.75 per cent levy on deposits of less than 100,000 euros, leaving a shortfall, but that was not enough to sway lawmakers, even in the ruling party, to accept the tax.
French Finance Minister Pierre Moscovici said the euro zone could not lend Cyprus any more, since the country's debt would become unmanageable.
"Above 10 billion euros we are entering into a size of debt that is not sustainable," Moscovici told reporters in Paris.
International market reaction has been muted so far but that might change.
"In the very short term, this will be a small victory for the more rational observers who had looked at this move as, frankly, outrageous. But it leaves Pandora's Box wide open," said Mike Moran, senior currency strategist at Standard Chartered in New York.
While Brussels has emphasised that the measure was a one-off for a country that accounts for just 0.2 per cent of European output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.
Dutch Finance Minister Jeroen Dijsselbloem, who chairs the group of euro zone finance ministers, said there would be no need to impose a levy in other euro countries.
Deutsche Bank Chief Executive Anshu Jain told a Bundesbank conference in Frankfurt. "We see near term contagion risk as limited. This is unlikely to be a model for other European Union states."
Anastasiades has continued to resist raising the levy on big deposits - many held by foreigners including rich Russians - fearing for the island's banking business model and reputation as a safe offshore financial haven.
He asked the EU for more aid during a telephone conversation with German Chancellor Angela Merkel on Monday.
Some Cypriots hope they could instead get aid from Russia, which has bailed out Cyprus in the past. Many Russians keep their money in Cyprus and operate businesses from there.
Government spokesman Christos Stylianides said Anastasiades might also speak to President Vladimir Putin, who had described the deposit levy as "unfair, unprofessional and dangerous."
Russian authorities have denied rumours that the Kremlin might offer more money, possibly in return for a future stake in Cyprus's large but as yet undeveloped offshore gas reserves, which have raised the island's strategic importance.
An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a "Trojan donkey" for Moscow inside the European Union since it joined in 2004.
Stunned Cypriots emptied cash machines over the weekend and banks are to remain shut on Tuesday and Wednesday to avoid a bank run. The island's stock exchange also suspended trading for another two days.

Cyprus Bank Turmoil Hurts Greek Banks

Greek banks hurt by Cyprus news, no sign of runs

By DEREK GATOPOULOS
Associated Press

By DEREK GATOPOULOS The Associated Press

Last modified: 2013-03-19T13:43:06Z

Published: Tuesday, Mar. 19, 2013 - 2:40 am

Last Modified: Tuesday, Mar. 19, 2013 - 6:43 am

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

ATHENS, Greece -- Banks stocks fell sharply on the Athens Stock Exchange on Tuesday, as trading resumed for the first time in Greece since Cyprus announced a shock plan to seize a part of bank deposits. There were no signs of bank runs, however.
Following losses among financial stocks across Europe, Greece's main stock index was down 3.7 percent in early afternoon trading, with banking stocks down as much as 7 percent.
After a public holiday Monday, Greek branches of the Cypriot lenders the Bank of Cyprus, Laiki Bank and Hellenic remained closed Tuesday and Wednesday. Trading in the shares of Bank of Cyprus and Laiki was also suspended for two days on the Athens Stock Exchange.
Public activity at Greek banks appeared normal Tuesday.
"I wouldn't expect a bank run (in other countries) ... Because different nationalities have their own belief in their own banking systems," said Theodor Krindas, managing director at Attica Wealth Management.
However, the deposit grab sets a dangerous precedent. "It creates a problem of trust in the European banking system as a whole."
Greek officials have made repeated assurances that all deposits in the country are not in danger.
"The deposits at all Greek banks and at the branches of Cypriot banks in Greece are totally safeguarded," Deputy Foreign Minister Dimitris Kourkoulas told state-run NET television.
He noted that Cyprus' problems were completely different from Greece's. Cyprus has a huge banking system that will collapse without rescue money. In Greece, the problem was overspending by the government.
To help in Cyprus' rescue operation, Greek banks are expected to purchase the operations of Cypriot banks in Greece. Those operations have estimated combined deposits worth (EURO)13 billion and loans totaling more than (EURO)20 billion, with more than 300 branches and more than 4,500 staff.
Asked about the expected acquisitions, Finance Minister Yannis Stournaras said: "We are ready," but refused to elaborate.
Conservative Prime Minister Antonis Samaras will meet later Tuesday with the heads of parties in the government coalition to discuss the Cypriot crisis and the ongoing deficit-cutting efforts in Greece.
Greece has strong ties with Cyprus, which is majority ethnic Greek. With an economy more than 11 times larger than that of Cyprus, Greece has been surviving on rescue loans for past three years as it struggles to make its national debt sustainable.

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Clean Monday, dirty plans for Greece and Cyprus!!!

On this Clean Monday Cyprus and Greece are suffering the consequences of being part of  the Eurozone. Dirty plans are shadowing the day and the dreams of our people once again!

 

Greek Clean Monday or Koulouma Customs

By Stella Tsolakidou on March 17, 2013 

 

Greek Reporter, Greece

Clean Monday is today and people across Greece are dusting off their kites and preparing the famous delicacies of the festive day to take with them on their outdoor excursions, also known as koulouma. The first day of the Eastern Orthodox Christian Lent requires the consumption of shellfish, taramosalata (fish roe dip), a special kind of azyme bread, baked only on that day, called “lagana”, halvas, gigandes and beans. The day refers to the leaving behind of sinful attitudes and non-fasting foods for the Christian believers, but the origins of the koulouma remain rather obscure to date.

Etymologically the word “Koulouma” is open to various interpretations. Greek folklorist Nikolaos Politis (1852-1921), argued that the word comes from the Latin “cuuiulus”, which means both abundance and end. Thus, the koulouma stand for the culmination of the carnival period and also the beginning of the season of the Lent (the forty days before Easter). Another theory has it that the koulouma derive from the also latin word “columna” (meaning column) because the people of Athens used to celebrate this day at the Temple of Olympian Zeus, and later on at the Philopappou hill. Others also claim that the custom comes from Konstantinople and the Greek population there would go to the seven hills of the city to celebrate.
The Clean Monday name (also Pure Monday, Lent Monday, Ash Monday) is of Christian origins meaning spiritual and physical purification. Some say the word clean was added to that day because housewives had to clean their houses and utensils all day long after the Carnival feast was finally over.
For most Greeks, celebrating Clean Monday means going to the hillside or by the sea to enjoy their fasting picnic and fly their kites, a custom that also varies in interpretation. Some claim it has Asian origins and was passed on to the west over the centuries. People would write wishes on their kites and fly them as high as possible so that the gods could answer them. Others suggest that ancient Greek mathematician Archytas of Tarentum (440-360 BC) was the first to design and use a kite in his aerodynamics experiments, and there is evidence from pottery dating back to the classical period showing a young woman holding a kite.
Special traditions celebrated in Greece on Clean Monday
Vonitsa, the custom of “Straw Gligorakis”
Popular legend has it that Gligorakis was a fisherman who turned his back to the sea and moved to live in the mainland. Contemporary anglers in Vonitsa condemn to date his act and punish Gligorakis every year on Clean Monday by making a fisherman figure of straw, tying it on a donkey and wandering it around the village. When the day passes by with singing and dancing, the men throw “straw Gligorakis” in a boat set on fire to burn away in the open sea.
Thebes, the “Vlach Wedding”
This custom dates from 1830 and refers to matchmaking of the time. Today it revives with the shaving of the groom and the bride’s preparation for the wedding, who is actually a man. In the meantime, all participants celebrate the Koulouma with satirical songs and lots of dancing.
Polysito in Vistonida, the custom of the “Smeared People”
Preparations for this custom begin the day before with the women of the village baking the traditional lagana bread and boiling the bean soup for their guests on Clean Monday. When the guests arrive, a surprise is awaiting them. Two men dressed up then sneak from behind and try to smear the incoming guests with soot from the cauldron boiling the soup, so that everyone celebrates the day in disguise.
Mesta in Chios, the custom of the “Aga”
The custom of the Aga has its roots in the Ottoman occupation period and remains to date a very funny and unique custom of the people of Mesta celebrated on Clean Monday every year. The Aga and his followers invade the village and move to the central square. There he gathers the people and puts everyone to trial for various misdeeds attributed to them and makes them pay the appropriate fine. The money collected from the fines goes to the fund of the cultural association of the village

Can Cyprus save the eurozone?

 

Facing Bailout Tax, Cypriots Rush to Get Their Money Out of Banks

By LIZ ALDERMAN

NEW YORK TIMES

ATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus over the weekend, hours after European officials in Brussels required that part of a new €10 billion bailout be paid for directly from the bank accounts of ordinary savers.

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Petros Karadjias/Associated Press

People lined up to use an ATM machine outside of a Laiki Bank branch in Larnaca, Cyprus, on Saturday.

The decision — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

A scheduled parliamentary vote on the plan at an emergency meeting Sunday was postponed until Monday. The delay was to give a chance for the newly elected Cypriot president, Nicos Anastasiades, to brief lawmakers, according to the president’s office.

Although banks placed withdrawal limits of €400, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger.

“This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a retiree in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The E.U. has diminished its credibility.”

In Nicosia, a crowd of about 150 demonstrators gathered in front of the presidential palace late in the afternoon after calls went out on the social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.

Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than €100,000 effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits of less than that amount are to be taxed at 6.75 percent, meaning that Cypriot creditors will be confiscating money directly from retirees, workers and regular depositors to pay off the bailout tab.

Mr. Anastasiades said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that have wreaked havoc in neighboring Greece. That thinking appealed to some Cypriots, including Stala Georgoudi, 56. “A one-time thing would be better than worse measures,” she said. “Procrastinating and beating around the bush would be worse.”

But Sharon Bowles, a British member of the European Parliament who is the head of the body’s influential Economic and Monetary Affairs Committee, said the accord amounted to a “grabbing of ordinary depositors’ money” in the guise of a tax.

“What the deal reflects is that being an unsecured or even secured depositor in euro-area banks is not as safe as it used to be,” said Jacob F. Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington. “We are in a new world.”

Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.

Hobbled by a devastating banking crisis linked to a slump in Greece’s economy, where Cypriot banks made piles of loans that are now virtually worthless, Cyprus on Saturday became the fifth country in the euro union to receive a financial lifeline since Europe’s debt crisis broke out. As the euro zone’s smallest economy, Cyprus had hardly been considered the risk for the euro group that Greece, Ireland, Portugal or Spain were.

But the surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses, but depositors’ funds were not touched.

Mr. Anastasiades, who was elected just a few weeks ago, called the decision “painful” but said it would lead to “the historic and definitive rescue of our economy.” He said the consequences of rejecting the deal would be the collapse of at least one of Cyprus’s major banks, amid widespread weakness in the country’s banking system.

Cypriot banks are loaded up on bad loans made to Greek companies and individuals, which have turned sour at an alarming rate as Greece has dealt with the fourth year of a devastating economic and financial crisis.

“I’m not surprised that people are trying to get their money out in Cyprus; that is entirely to be expected,” Mr. Kirkegaard said. “They wake up Saturday morning and are told on the radio their bank deposits are at risk.”

The deposit tax, which is expected to raise €5.8 billion appeared aimed at gleaning large amounts of cash from the accounts of wealthy Russians, who have poured deposits into Cypriot banks in the past several years. Chancellor Angela Merkel of Germany, who faces a pivotal election in September, has been particularly concerned that most of the bailout money could wind up in the hands of Russian gangsters and oligarchs, a fear backed by a recent report by the German intelligence agency. Officials in Cyprus have said there is no proof the Russian cash is of questionable origin. They insist they cracked down on money laundering before joining the European Union.

Because Russian depositors would have to share the burden, it would ultimately relieve Cyprus from its debt load by allowing a one-time payment upfront rather than deeper cuts to salaries and pensions or additional privatizations in the future.

Mr. Kirkegaard said he was surprised that Cypriot creditors had decided to go after smaller depositors, but that part of the rationale might have been avoiding putting too much pressure on businesses, which hold a large share of the high-value accounts.

Given the stunned reaction, it was not certain the measure would pass the Cyprus Parliament. Nicholas Papadopoulos, the head of Parliament’s financial affairs committee, said the decision was “much worse than what we expected and contrary to what the government was assuring us, right up until last night,” Reuters reported.

Reporting was contributed by Nicholas Kulish from Berlin; Landon Thomas Jr. from London; James Kanter from Brussels; and Andreas Riris from Nicosia, Cyprus.

European Coup d' Etat in Cyprus

 

Cyprus Bank Deposits to Be Taxed in $13 Billion Bailout (Bloomberg News)

By Rebecca Christie & Corina Ruhe - Mar 16, 2013 7:52 AM ET

 

Euro-area finance ministers agreed to an unprecedented tax on Cypriot bank deposits as officials unveiled a 10 billion-euro ($13 billion) rescue plan for the country, the fifth since Europe’s debt crisis broke out in 2009.
Cyprus will impose a levy of 6.75 percent on deposits of less than 100,000 euros -- the ceiling for European Union account insurance -- and 9.9 percent above that. The measures will raise 5.8 billion euros, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, told reporters early today after 10 hours of talks in Brussels. The euro region’s bailout kitty and, possibly, the International Monetary Fund will look to make up the shortfall. A partial“bail-in” of junior bondholders is also possible.
Officials have struggled to find an agreement that would rescue Cyprus, which accounts for just half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Policy makers began meeting at 5 p.m. yesterday in a hastily convened gathering, seeking to overcome differences on bondholder losses while financial markets were closed.

Bank Runs

“Further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalisation of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders,” according to a communique released by ministers after the talks. It didn’t specify whether bank or sovereign bond holders could be affected.
The European Central Bank will use its existing facilities to make funds available to Cypriot banks as needed to counter potential bank runs. Depositors will receive bank equity as compensation.
Finance Minister Michael Sarris said the plan was the“least onerous” of the options Cyprus faced to stay afloat.
“It’s not a pleasant outcome, especially of course for the people involved,” said Sarris. The Cypriot parliament will convene tomorrow to vote on legislation needed for the bailout.
While the tax on deposits will hurt wealthy Russians with money in Cypriot banks, it will also sting ordinary citizens. Some ATMs in the country have run out of cash, Erotokritos Chlorakiotis, general manager of the Cooperative Central Bank, told state-run CYBC.

Frozen Funds

Funds to pay the levy were frozen in accounts immediately, ECB Executive Board Member Joerg Asmussen said. The levy will be assessed before Cypriot banks reopen on March 19 after a March 18 national holiday. Sarris said electronic transfers will also be limited until then.
“As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders,” Dijsselbloem said, noting the country’s financial industry was five times the size of its economy. The plan includes “unique measures” that address the “exceptional nature” of Cyprus and show “inflexible commitment to financial stability and the integrity of the euro area.”
The IMF will consider contributing money to the rescue, said IMF Managing Director Christine Lagarde, who travelled to Brussels for the talks. “We believe that the proposal as outlined by Jeroen is actually sustainable,” she said.
Euro ministers expect the region’s bailout fund, the European Stability Mechanism, will approve a bailout proposal“by the second half of April 2013 and subject to completion of national procedures.”

Skeptics

Cyprus pledged to step up asset sales and enact budget cuts amounting to 4.5 percent of gross domestic product. The aid program, which should be completed by the second half of April, calls for its debt to be 100 percent of GDP by 2020. The EU forecasts it at 93 percent this year. The deal calls for the banking sector to shrink substantially by 2018.
Skeptics including Luxembourg’s Jean-Claude Juncker had said that imposing investor losses in Cyprus risked reigniting the financial crisis that has so far pushed five of the euro zone’s 17 members to seek aid. Last year, the euro area took what officials called a unique step to ask Greek bondholders to absorb losses.
Asmussen said tapping deposit holders was needed to expand Cyprus’s tax base. European Union Economic and Monetary Affairs Commissioner Olli Rehn called the assessment a strictly fiscal measure. Rehn had warned against so-called haircuts on depositors to avoid setting a destabilizing precedent.
When asked if a deposit assessment could be ruled out for future rescues, Rehn said in an interview: “It can and there is no concrete case where it should be considered.”

ECB Role

“This kind of stability fee is clearly a much better choice from the point of view of financial stability and Cypriot citizens than a full-scale bail-in, which would have led to very chaotic consequences in the Cypriot economy,” he said.
Cypriot banks are on track to regain access to ECB emergency lending facilities once they have been successfully recapitalized, Asmussen said. Cyprus is “systemically relevant” and needs assistance to ensure stability of the euro, Asmussen told reporters.
The ECB also will be available to euro-area banks that may need extra liquidity, Asmussen said. Authorities plan to ringfence Cypriot bank branches in Greece, through transactions with Greek banks that won’t require money from Greece’s rescue funds, he said.
Corporate tax rates in Cyprus will rise to 12.5 percent to 10 percent as part of the deal, Dijsselbloem said. Rehn told reporters that Russia, whose banks have loaned as much as $40 billion to Cypriot companies of Russian origin, would ease terms on its existing loans to Cyprus as the rescue unfolds. Cyprus’s finance minister is scheduled to fly to Moscow on March 20.
At the talks, the ministers also agreed to give extra time to Ireland and Portugal to repay loans to the European Financial Stability Facility. The euro group, IMF and ECB will approve the details of the extensions and the Cyprus deal once technical details have been ironed out and national parliaments have acted as needed, the finance ministers said in a statement.