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CYPRUS BANK INSOLVENCY CRISIS BOOMERANGS!

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Cyprus bank insolvency crisis quickly escalating;

may set off EU bankageddon

MikeAdams

Friday, March 22, 2013

by Mike Adams, the Health Ranger

Editor of NaturalNews.com

(NaturalNews) As you may have suspected, there’s far more to the Cyprus bank crisis story than meets the eye. It turns out the shutdown of Cypriot banks has caused a large-scale financial shutdown of the Russian government which uses Cyprus banks for most transactions.On top of that, the EU central bank (ECB) has now issued an ultimatum that threatens to revoke all financial support and crash the Cypriot banks if they can’t come up with 5.8 billion Euros by Monday. Reuters reports:The European Central Bank, which has kept Cyprus’s banks operating with a liquidity lifeline, said the government had until Monday to get a deal in place, or funds would be cut off – putting not just the Cypriot economy in jeopardy but billions of euros held on the island by foreigners, notably from Russia.USA Today reports, “If it does not find a way by Monday, the European Central Bank said it will cut off emergency support to the banks, letting them collapse. That would throw the country into financial chaos and, ultimately, cause it to leave the eurozone, with unpredictable consequences for the region.”Until then, the banks remain closed, and everybody knows the minute they open, every account holder will immediately transfer their money out of the banks, causing a near-instant bank run and a collapse.The worry across the eurozone now is that this imminent bank collapse will trigger account holders in Greece to start taking their money out of the bank, too. The Greek banking system is already in such sad shape that it only takes a very small percentage of account holders withdrawing their funds — perhaps 5% or so — to topple Greek banks. That’s because the banks are roughly 95% leveraged with fractional reserve accounts and complex debt instruments.Once bank runs begin in Greece, they will spread across the EU. Fear will kick in everywhere and depositors will run on the banks in Spain, Italy and even the UK. Germany is arguably in the safest position to defend against bank runs, but even its banks are unwisely leveraged beyond reasonable ratios.We are about to witness massive wealth destruction

It’s important to understand that fractional reserve banking wealth is a fictional construct that does not exist in reality. Thus, the wealth created by fractional reserve banking is nothing more than a mirage that can be destroyed literally overnight.

Importantly — and here’s the real point nobody is talking about — Russia may be willing to let Cypriot banks collapse and lose a lot of money itself, knowing that the aftermath of a collapse may set off a chain reaction of bank collapses across the EU.

EU authorities seem to anticipate this possibility and they are already talking about dropping Cyprus from the EU as quickly as possible. As Yahoo News reports:

The official also referred to the need to resolve the issue of Cyprus’s two biggest banks, both of which are close to collapse, and mentioned the possibility of Cyprus leaving the euro zone. In the event of an exit, the official said steps needed to be taken to “ring-fence” the rest of the euro zone from the impact and to ensure there was no contagion to Greece.

“Contagion” is the right word, because if this situation doesn’t get resolved very, very quickly, we may be witnessing the start of the collapse of the EU — an outcome that would very well serve the political interests of Russia. So don’t expect Russia to try to resolve any of this. It may be waiting in the wings and actually hoping to help set off a kind of “bankageddon” that, once begun, will be impossible to stop.

Learn more: http://www.naturalnews.com/039588_Cyprus_banking_crisis_collapse.html#ixzz2OQ1lcnDh

THIS IS FROM THE UK GUARDIAN –

MARCH 22, 2013 –

ALL DAY UPDATES!

CYPRUS CRISIS; MPs APPROVE RESTRUCTURING AND SOLIDARITY FUND

First the Cyprus government said it would take 6.7% fee from all bank accounts under 100,000 and 9 % plus from all above that, then their legislators voted that down, so the government said no they would’t do it! EU bail out rules did not change, however, and in a day that was fraught with demonstrations, rain, EU flag burning, tears & lines at ATM machines, the government voted in  some highly restrictive banking regulations, last night and said that now the fee will be 15% for all accounts over 100,000!

Cyprus crisis: MPs approve bank restructuring and solidarity fund – as it happened

Closing summary: what now for Cyprus and the eurozone?
Voting highlights
Wealthy savers to be taxed
Britain sends top civil servants to help
Eurogroup meeting on Sunday

        graeme_wearden_140x140   

       Graeme Wearden

guardian.co.uk, Friday 22 March 2013 22.21 EDT

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People protesting outside the Cypriot Parliament this morning, where the vote has been repeatedly delayed. Photograph:

Yiannis Kourtoglou/AFP/Getty Images

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7.43am GMT

MPs vote on bank restructuring legislation this morning

Good morning and welcome to our rolling coverage of the Cyprus crisis, as it struggles to agree a new bailout deal as the clock ticks towards the Monday deadline set by the European Central Bank.

MPs in Nicosia are preparing to vote on new legislation to restructure its banking sector this morning.

The vote, on nine different bills, will pave the way to restructuring its second largest bank, Laiki, and imposing unprecedented restrictions on financial transactions on the sector.

The session, which begins at 8am GMT, is a crucial step for Cyprus (in its push for Plan B), and should cut more than €2bn off the €6bn which Cyprus must find.

But Cyprus will still need to reach a deal with the eurozone and the International Monetary Fund before the ECB carries out its threat to withdraw liquidity support on Monday.

And without that plan, Cyprus’s position looks pretty shaky this morning.

The vote comes as finance minister Michalis Sarris flies home from Russia, apparently having failed to secure fresh support from Moscow.

As Bloomberg reports:

“I think we are not able to get the support that we wanted to get,” Sarris said in an interview after checking out of the Lotte Hotel in downtown Moscow. “But we must go back home because things are getting serious.”

We’ll be following all the latest developments through the day.

Updated at 5.49pm GMT

8.05am GMT

Russia: no new help for Cyprus

Russia’s finance minister has also confirmed that talks with Cyprus over a possible rescue package have ended without a new deal.

Anton Siluanov has told reporters in Moscow that Russia would wait to see whether Cyprus reached a new deal with the Troika (the EU, the IMF and the ECB) first.

Siluanov said:

The talks have ended as far as the Russian side is concerned

Yesterday, Cyprus’s finance minister Michalis Sarris had said he hoped to interest Russian investors in taking stakes in Cyprus’s banks and energy deposits

Updated at 8.26am GMT

8.18am GMT

There are signs this morning of rising frustration in Germany.

Volker Kauder, parliamentary leader of Angela Merkel’s CDU party, has warned that Cyprus is “playing with fire”, and needs to find a workable proposal to find its share of the bailout urgently.

Kauder also told the ARD TV station that Germany would not support the nationalisation of Cyprus’s pension funds (one possible way to find the shortfall in the bailout plan).

I don’t think this can happen, because this would be huge for pensioners, for the small people. So I don’t think this is a proposal that help…

If a proposal comes, I am optimistic. But we aren’t there yet…..I still believe we will get a settlement, but Cyprus is playing with fire.

8.25am GMT

A crisis of ‘stupidity’

Sir Howard Davies, former boss of Britain’s Financial Services Authority, just told Radio 4 Today programme that this is a crisis of ‘stupidity’, and that it was “too big an ask” to take a levy from deposit holders (as in the original plan).

The IMF and EU are going to have put more funds in unless they want Cyprus to “slip out” of the euro, he added.

But Germany’s Michael Meister, the deputy leader of the CDU party, rejected the criticism – saying Cyprus was being treated fairly, and needed to take the necessary steps to bring its finances into line.

If we relax the rules for Cyprus, how will Ireland, Greece, Portugal et al feel, he asks.

8.37am GMT

Session delayed

The vote in Cyprus has been delayed until this afternoon.

There are reports that this is to allow finance minister Michalis Sarris to return to parliament and update MPs on his trip to Russia.

Updated at 8.48am GMT

8.59am GMT

Photos: more protests outside Cyprus parliament

A protest rally is taking place outside Cyprus’s parliament this morning, including many banking sector workers who face losing their jobs through the restructuring of Laiki Bank:

Banking sector workers protest in Nicosia, Cyprus Banking sector workers protest in Nicosia, Cyprus Banking sector workers protest in Nicosia, Cyprus

Photographs: KATIA CHRISTODOULOU/EPA

Updated at 8.59am GMT

9.16am GMT

Cyprus state TV is reporting that a government spokesman will make a statement on the situation at noon local time, so in around 45 minutes.

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Steve Collins @TradeDesk_Steve

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*CYPRUS GOVERNMENT SPOKESMAN TO MAKE STATEMENT AT MIDDAY: CYBC

9:08 AM – 22 Mar 13

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9.23am GMT

No market panic

Shares on Europe’s financial markets are mainly lower this morning, but the situation remains pretty calm as the Cyprus crisis plays out:

FTSE 100: up 3 points at 6391, + 0.04%

German DAX: down 47 points at 7884, – 0.6%

French CAC: down 24 points at 3750, – 0.6%

Spanish IBEX: down 68 points at 8282, – 0 .7%

Italian FTSE MIB: down 4 points at 15929. – 0.04%

And the euro is flat, at around $1.291 against the US dollar.

So why no panic, given the risk of Cyprus’s bailout collapsing, followed by its banks next week if the ECB walks away? Well, analysts and traders seem to be clinging to the hope that a deal will be agreed in time.

As Chris Weston of IG Index put it:

One gets the sense that at the end of the day the Cypriots should see the pain that will come from a disorderly bank failure, and cobble together a weekend deal.

Or at least that’s the plan, because if they don’t the ECB will not be there to help them out on the liquidity front. A final weekend agreement is our base-case.

9.32am GMT

Merkel on Cyprus

Back to Germany, and Angela Merkel has discussed the Cyprus crisis with MPs at a closed door session this morning.

Reuters has got the details:

German Chancellor Angela Merkel told lawmakers on Friday the nationalisation of pension funds in Cyprus would not be an acceptable way of plugging a hole in its finances to qualify for an international bailout, parliamentary sources said.

Merkel was also quoted by two MPs from her centre-right coalition as saying that debt sustainability and the restructuring of its banks must be core elements of any new Cyprus deal, which she called an matter of “credibility”.

Merkel apparently also told MPs that she wanted Cyprus to remain within the euro, but that it “must realise its business model is dead”.

That fuels the suspicion that Germany was determined to end Cyprus’s close financial links to Russia.

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Ian Traynor @traynorbrussels

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#cyprus yep, it really does look like that berlin is going for it this time

9:07 AM – 22 Mar 13

Updated at 9.32am GMT

9.36am GMT

Heads-up: European Commission president José Manuel Barroso and Russian president Dmitry Medvedev are hold a press conference in Moscow soon. It will be streamed here.

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Juergen Baetz @jbaetz

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Press conference of EU’s Barroso and Russia’s Medvedev live here shortly, watch out for #Cyprus comment:

http://

ec.europa.eu/avservices/ebs

/live.cfm?page=1

 

9:17 AM – 22 Mar 13

9.36am GMT

Another photo from this morning demo in Cyprus:

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Widiane Moussa @widianemoussa

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Frustrated Cypriots at Parliament are calling for the resignation of Central Bank governor Panicos Demetriades pic.twitter.com/XrwXGCFfWn

9:02 AM – 22 Mar 13

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Updated at 9.37am GMT

9.44am GMT

The crisis in Cyprus has hit business confidence in Germany, which has dropped for the first time in five months (according to Munich’s Ifo institute).

And if Germany business leaders are worried, it’s a fair bet that those in other eurozone countries are too. Not good for the eurozone’s hopes of escaping recession soon. More details here on Bloomberg.

9.46am GMT

There’s talk that the debate and vote in Cyprus has been pushed back again:

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Yannis Koutsomitis @YanniKouts

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#Cyprus Parliament session moved further back to ‘evening’ ~CNA

9:43 AM – 22 Mar 13

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10.18am GMT

What capital controls mean

We now have details of the ‘capital controls’ which Cyprus intends to vote into law (sometime) today, thanks to star blogger @YiannisMouzakis:

It’s a remarkable set of restrictions on the usual nuts and bolts of the financial system – particularly given the final point:

      • Restrictions in daily withdrawals
      • Ban on premature termination of time savings deposits
      • Compulsory renewal of all time savings deposits upon maturity
      • Conversion of current accounts to time deposits
      • Ban or restrictions on non cash transactions
      • Restrictions on use of debit, credit or prepaid debit cards
      • Ban or restriction on cashing in checks
      • Restrictions on domestic interbank transfers or transfers within the same bank
      • Restrictions on the interactions/transactions of the public with credit institutions
      • Restrictions on movements of capital, payments, transfers
      • Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety

The full bill is online here (in Greek)

10.23am GMT

My colleague Helena Smith is in Nicosia, and reports that there is still optimism that the legislation will be voted through today:

Just spoke to former MP economist Marios Mavrides who was optimistic despite Merkel’s criticism of the Cypriot government’s latest rescue plan.

He said he thought the island’s 56-member parliament would easily endorse all nine bills to keep the banking sector afloat. “Every hour that passes is absolutely critical,” he said. “Restructuring of Laiki will raise €2.7bn and I have no doubt that it will be passed probably later this afternoon,” he said.

10.43am GMT

Reports: Troika ‘rejects Plan B’

The government’s plan for a national solidarity fund may have been rejected by the country’s international lenders, according to two reports from Cyprus this morning.

And that has left some MPs in Cyprus talking about a return to the deposit tax that appeared to have been abandoned a few days ago.

Greece’s Kathimerini reports:

Cypriot President Nicos Anastasiades held talks with the troika in Nicosia on Friday morning as it looked like his government might have to abandon plans to create an investment fund to prevent the collapse of its banking system.

As reported earlier (see here), Angela Merkel remains opposed to using Cyprus’s pension reserves as assets in the Solidarity Fund which was being drawn up.

The Financial Times is also reporting that the Troika (the IMF, the ECB and the EU) have told Cyprus that the plan drawn up yesterday isn’t acceptable:

Lenders rejects latest Cyprus bailout plan

“There was some discussion of going back to the original plan of a bank levy, but there are objections from the central bank,” said one person with knowledge of the talks.

We are still chasing more detail on the situation, and it’s important to note that other newswires with good people on the ground are not reporting it as fact. Yet anyway.

Hopefully we should know more soon – when government spokesman Christos Stylianides has addressed the media….

11.10am GMT

People continue to queue up at cash machines of Laiki (Popular) bank this morning – but we’re not seeing a big panic (Laiki savers should now have their deposits protected under the plan to split it)

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Photograph: JOHN KOLESIDIS/REUTERS

11.11am GMT

Government spokesman: next few hours will determine our fate

Cyprus’s top government spokesman has told reporters that ‘the next few hours’ will determine the future of the country, as rumour swirls over its latest plans for a bailout (see 10.43am)

Christos Stylianides added that MPs will have to take “difficult decisions” later today, now that legislation to impose capital controls and split Laiki Bank have been submitted to parliament.

Here’s the full statement:

Statement by the Government Spokesman, Mr Christos Stylianides

The President of the Republic and the Government are in hard negotiations with Troika in order to conclude to solutions that will save the banking system, the economy in general and will bring back calmness in the country. During these really critical hours, everyone must demonstrate the highest level of responsibility.

The President of the Republic, as he mentioned during his address to the nation, assumed a high political cost and accepted the deal with the Eurogroup for the stability levy, despite his disagreements, bearing in mind the social misery that a possible rejection of the proposal would cause.

In a few hours we will be called upon to take the big decisions and reply to the hard dilemmas.

The Government has already submitted the bills. The philosophy through which it is trying to find the best possible solution, under the given circumstances, is already known.The House of Representatives will soon be called upon to take the big decisions.Undoubtedly, there will also be painful aspects in any decision taken, but the country must be saved.

The political leadership must, despite the different ideological and political approaches,provide the way out. The President of the Republic as the guardian of unity kept the political leadership constantly briefed and respected the decision of the House of Representatives. Through the continuous meetings with the party leaders he aimed at collective wisdom.
The next few hours will determine the future of this country. We must all assume our responsibility.

[end]

11.32am GMT

Greece takes control of Cyprus banks’ Greek assets

Greek banks are taking control of the branches and assets of Cypriot banks based in Greece, following a deal hammered out between the two countries, and announced in the last few minutes.

This was one element of the original bailout deal agreed last weekend. Financial terms aren’t available, but Cyprus insists it got the best deal under the (pretty terrible) circumstances:

After talks between Cyprus President Nicos Anastasiades with Greek Prime Minister Antonis Samaras, it was confirmed that the spinoff issue of Greek branches of Cypriot banks has been settled with the most favourable terms under the present circumstances, with a significant benefit for the Cypriot side.

11.49am GMT

Insiders: deposit tax could be added to legislation today

Cyprus insiders have confirmed to the Guardian that the original plan to tax bank deposits is back on the agenda today.

But it’s likely that small savers with less than €100,000 in the bank would be spared (but that’s not official)

The move comes growing criticism of the way Cypriot politicians have handled the crisis.

From Nicosia, Helena Smith reports:

Insiders are telling me that the tax levy may well be included in legislation MPs will be called to vote on later today.

The chief executive of Laiki Bank has also joined the chorus of criticism of the the government’s alternative bailout calling the restructuring of Cyprus’ second biggest bank “a disaster.”

“It will be a disaster not just for the bank but for the economy of Cyprus,” he said.

Dividing the lender between “good” and “bad” banks would have a knock-on effect for other banks he argued and lead, inexorably, to soaring unemployment, closure of businesses and loss of deposits.

“The bank is a systemic bank and we believe this problem will be transferred to the other banks very quickly. So effectively no bank will be able to operate normally from now on and I don’t really know until when.”

That is in line with view of other more cool-headed analysts who have also described the overwhelming repudication of the first bailout package as a classic example of MPs pandering to populist sentiment.

Cypriot TV is reporting that those with more than €100,000 in a Cypriot bank could lose at 15% of their savings.

Yiannis Mouzakis @YiannisMouzakis

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Sigma TV reports option of levy 15+% over 100K, below 100K untouched considered. @peter_tl and @Hugodixon should have led the negotiations

10:54 AM – 22 Mar 13

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If the would suggest that Cyprus’s hope of creating a national solidarity fund has been rejected by the Troika, as rumoured this morning (see here).

Updated at 11.49am GMT

12.04pm GMT

Dow Jones Newswires also reckons that savers with less than €100,000 will be protected if the Cyprus government returns to the original idea of taxing deposits

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DJ FX Trader @djfxtrader

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Cyprus Mulling Reintroducing Small One-Off Levy on Deposits Over EUR100,000 – Sources

11:36 AM – 22 Mar 13

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DJ FX Trader @djfxtrader

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Cyprus Deposits under EUR100,000 Would Be Exempt from Levy – Sources

11:37 AM – 22 Mar 13

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12.40pm GMT

Large depositors facing heavy losses

So, rather than Plan B, Cyprus appears to be moving towards a rejigged version of the deal fatefully agreed last weekend.

Plan A lite, perhaps – Losses for large depositors but protection for smaller ones with less than €100,000.

That matches the deposit guarantee schemes in place across Europe, but whose effectiveness has been questioned by the widely derided decision to hit all savers.

Now, if the plan to split Laiki Bank into ‘good’ and ‘bad’ units is executed, then Cyprus’s contribution to its own bailout falls from €6bn to perhaps €3.5bn (because Laiki no longer needs to be recapitalised).

12.57pm GMT

Bloomberg: eurogroup’s new plan

Bloomberg is reporting that Eurozone finance ministers are pushing Cyprus to hit large depositors at both of its two biggest banks – Bank of Cyprus and Laiki – with losses of up to 40%, in an attempt to get a new bailout deal agreed in time.

Under the plan, attributed to four European officials, the two institutions would be smashed together to create a ‘good’ bank and a ‘bad’ bank:

Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.

Losses to unsecured creditors, including uninsured depositors, could reach 40%, which has support from the International Monetary Fund and the European Central Bank.

More here.

Close watchers of the crisis will know that a similar version of this plan was discussed at the meeting last weekend when the Cyprus bailout was agreed.

As this inside story of the negotiations explains, Germany and the IMF wanted a big hit on wealthier savers’ deposits, the commission was keen on modest contributions from savers with less than €100,000 and president Anastasiades didn’t want to spook wealthy Russians.

A week is a long time in the eurozone crisis

1.40pm GMT

Employees of Laiki Bank are still demonstrating outside the Cyprus parliament building.

There is still no news of the bank’s fate, as the legislation to break it into a good and bad bank has not yet been voted on, as Cyprus continues to negotiate.

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A protester cries during an anti-bailout rally by employees of Cyprus Popular Bank outside the parliament in Nicosia today. Photograph: ANDREAS MANOLIS/REUTERS

1.47pm GMT

President Anastasiades: we must save Cyprus

Cyprus’s president Nicos Anastasiades has tweeted that it is vital that MPs pass the legislation to restructure its banking sector and bringing capital controls.

He said:

Parliament will have to take big and difficult decisions. There will be painful aspects but country must be saved

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Nicos Anastasiades @AnastasiadesCY

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Η Βουλή θα κληθεί σε λίγο να πάρει μεγάλες & δύσκολες αποφάσεις.Θα υπάρχουν οδυνηρές πτυχές, όμως η χώρα πρέπει να σωθεί #cyThaTaKataferoume

12:37 PM – 22 Mar 13

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As explained this morning (here), the capital controls will mean draconian restrictions for Cyprus.

They include limits on daily cash withdrawals, a total ban on accessing cash in ‘timed’ savings accounts (ie, with a 90-day notification limit). limits on cashing cheques, and restrictions on movements of capital, payments, transfers.

2.02pm GMT

Financial markets are looking calm, with the Dow Jones index gaining 55 points, or 0.4%, in early trading to 14476. The FTSE 100 is up 23 points, also 0.4%, to 6412.

The reports from Nicosia today that the government is trying to hammer out a new deal behind the scenes appears to have reassured traders.

Market analysts Ransquawk commented:

Sentiment has recently lifted in Europe following the news that talks between Cyprus and the Troika are at their final stages.

Still some way to go, though.

2.19pm GMT

A Summary

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Police officers stand guard in front of protesters during an anti-bailout rally by employees of Cyprus Popular Bank outside the parliament in Nicosia today. Photograph: ANDREAS MANOLIS/REUTERS

Time for a catch-up of the main developments in Cyprus so far today:

Cyprus has warned that its future would be decided on Friday as frantic negotiations with international lenders continued.

Government spokesman Christos Stylianides said the Cyprus parliament had just a few hours to take tough decisions to save its economy and banking sector, and avoid ‘social misery’.

Stylianides told reporters in Nicosia:

In a few hours we will be called upon to take the big decisions and reply to the hard dilemmas.

The next few hours will determine the future of this country. We must all assume our responsibility.

The full statement is here

The Cyprus parliament has twice delayed a planned vote on the rescue package hammered out by Cypriot leaders yesterday. The debate was due to start 6 hours ago, but is in limbo as frantic behind-the-scenes talks continue.

Government insiders have told us the plan could dramatically change again, and include a tax on savers. (see here)

It appears, though, that Cyprus would spare those with less than €100,000 in the bank.

According to Bloomberg, rich depositors (with over €100k) at Cyprus’s two biggest banks could suffer losses of up to 40%. (See here)

• Russia has declined to offer fresh support to Cyprus, following the finance minister’s two-day visit to Moscow. Talks are over, according to the Russian finance minister

• Germany’s chancellor, Angela Merkel, has voiced her opposition to Cyprus nationalising pension funds to fund its €6bn portion of its bailout. Merkel told her MPs that Cyprus had to realise that its business model was dead (more here)

Details of Cyprus’s plans for capital controls have emerged. They include dramatic restrictions on Cypriots and businesses in the country, including:

* unspecified limits on daily cash withdrawals,
* a total ban on accessing cash in ‘timed’ savings accounts,
* limits on cashing cheques, and
* restrictions on movements of capital, payments, and transfers.

The full grim details are here

• And outside the Cyprus parliament, demonstrators continue to protest (photos here)

Updated at 2.20pm GMT

2.24pm GMT

Ruling party: deal could be just hours away

Breaking: Cyprus ruling party has said a bailout deal acceptable to the European Union may be only hours away. Crucially, it is talking about a deal ‘within the EU framework’.

Looking for more details….

The news has sent the euro rallying over the $1.30 level, as traders bet that the crisis could yet end well……

2.57pm GMT

OK, here’s the details of the upbeat comments from the Cypriot government about a deal within “the next few hours.”

Averof Neophytou, deputy leader of Cyprus’ ruling Democratic Rally party, has said the government can reach an “agreed platform” so parliament can approve these specific measures that are consistent with the targets and framework of the last Eurogroup meeting (when the original bailout was agreed).

If so, that would unlock the €10bn promised to Cyprus by the eurozone and the IMF, and the risk of it crashing out of the eurozone would recede.

3.12pm GMT

Key event

Hold that optimism, folks. News agency NMI is reporting that the European Central Bank has vetoed one of the ideas put forward by the Cyprus government today.

It appears that Cypriot MP’s had asked to be allowed to change some of the legislation heading through the parliament, but this was rejected by the ECB.

If nothing else, it suggests the negotiations are continuing — seven hours after a debate on the plan was due to begin.

3.21pm GMT

So, MPs in Nicosia continue to try to reach a deal – and the weather now matches the mood of the nation:

Matina Stevis @MatinaStevis

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Skies have opened over Nicosia, pouring rain. #cyprus parlt econ committee in session for 9th hour as troika, govt negotiate

2:49 PM – 22 Mar 13

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3.33pm GMT

Employees of Laiki Bank, or Cyprus Popular Bank, continue to hold their rally outside parliament in Nicosia:

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Photograph: YANNIS BEHRAKIS/REUTERS

And this was the scene a little earlier:

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Photograph: YIANNIS KOURTOGLOU/AFP/Getty Images

4.10pm GMT

Schäuble: lack of panic shows faith in eurozone

Tempting fate? German finance minister Wolfgang Schäuble has declared that the calm reaction to the Cyprus crisis in the financial markets shows that traders have confidence in the eurozone.

Schäuble told the Bild tabloid that:

The crisis over Cyprus has so far had no measurable impact on the interest rates of, for example, Spain or Portugal.

The financial markets clearly recognise that the euro zone is essentially better prepared for possible turbulence.

Just checked the bond yields, and Schäuble‘s right – Spanish 10-year bonds are trading at an interest rate of 4.87%.

But the counter-argument is that the system is only holding together because of the various ‘unorthodox’ measures deployed by central bankers, and faith that they would do even more if needed.

As this new research note from Capital Economics explains;

Potential triggers for a rebound in volatility therefore include a renewed flare-up of the crisis in the euro-zone (perhaps now only starting in Cyprus), the withdrawal of exceptional monetary stimulus and a variable pace of monetary and fiscal tightening in different countries.

4.17pm GMT

It’s now been confirmed that Greece’s Piraeus is buying the Greek-based units of Bank of Cyprus and Laiki Bank, following the agreement announced this morning (see 11.32am)

Shares in Piraeus have leapt by 20% today, suggesting it got rather the end of the deal.

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Paweł Morski @Pawelmorski

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how do i put this? Bluntly: why are the Cypriots not trying to hold the Greek units of their banks hostage?

3:24 PM – 22 Mar 13

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4.26pm GMT

Debate to start at 6pm GMT – report

Just in: the political leaders of Cyprus are expected to meet in around half an hour’s time (7pm local time, or 5pm GMT) to consider the proposal which has been ground out today.

The plan, according to the RIK TV station, is for the debate to start at 8pm local time (ie, 6pm GMT), followed by a vote tonight.

For guidance, the first debate on Tuesday night lasted two hours.

Updated at 4.49pm GMT

4.43pm GMT

Cyprus finance minister confirms bank levy is back in focus

Official confirmation that Cyprus is considering resurrecting the plan to tax some bank deposits (as has been rumoured for some hours), from finance minister Michalis Sarris.

Back from Moscow Sarris was asked by reporters if a bank levy was being considered. He replied:

I think that is clearly on the table, that is something that needs to be discussed to see whether a levy on deposits of some sort … would make a contribution to finalising the package.

Interestingly, Sarris then suggested that Cyprus’s contribution to the bailout may have changed:

We are now talking about different numbers and we have to look at what are the possible sources.

The disruption in Cyprus this week, and the closure of its banks, has already harmed its economy — and the capital controls now being considered are likely to depress output further.

Updated at 4.43pm GMT

5.10pm GMT

Our Europe editor, Ian Traynor, reports from Brussels:

European Commission officials say that the legislation on restructuring Cyprus Popular Bank and imposing capital controls had to be endorsed by the troika and then implemented virtually immediately to have a chance of meeting Monday’s deadline.

Officials said that eurozone finance ministers could stage another emergency session on Sunday either in Brussels or by teleconference.

5.31pm GMT

It would be remiss of me not to mention that Fitch, the rating agency, has just put the UK on Rating Watch Negative – meaning the AAA rating is more likely to be cut.

Fitch made the move after analysing the economic growth and debt forecasts in Wednesday’s budget. It will decide by the end of April whether to downgrade. The statement is here.

5.43pm GMT

After a dramatic week our economics editor, Larry Elliott, has written about the five lessons we can learn from the Cyprus crisis.

Here’s one of them:

The eurozone is kidding itself if it thinks it has completely corralled the crisis. Bank depositors in other member states will not forget that the eurozone was willing at one part to target depositors big and small. They will also have picked up that when Cyprus pushed back against the original plan, the eurozone blinked.

Five lessons from a week of confusion in Cyprus

Update: Johanes points out in the readers comments below (here) that there is a 6th lesson: the human impact of this awful week:

Not one of these “lessons” has anything to do with the loss of dignity or coming poverty of a block of European citizens. The markets and the troika “got away with it” it seems. This time.

Updated at 5.52pm GMT

6.03pm GMT

Demonstrators outside the Cyprus parliament have daubed “No” across a Flag of Europe this evening, and then burned it* (according to two people at the scene).

* – or a second flag (you can see from the second photo that there were too).

Cyprus finacial crisis

Demonstrators protest outside Cyprus s parliament, Nicosia 22 March 2013, as lawmakers debate emergency legislation leading to the break-up of Popular, the island s second-largest bank. Photograph: KATIA CHRISTODOULOU/EPA

Theodora Oikonomides @IrateGreek

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Protesters burn the European flag outside the #Cyprus parliament via @AndreasKakaris #rbnews pic.twitter.com/tn9EVC95Jh

5:53 PM – 22 Mar 13

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Widiane Moussa @widianemoussa

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It hasn’t taken long: burnt remainder of the EU flag outside parliament #Cyprus pic.twitter.com/WPI0K2sZo8

5:56 PM – 22 Mar 13

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Updated at 6.08pm GMT

6.23pm GMT

Wealthy depositors could face 15% tax

Amid the swirling rumours tonight, there is further evidence that deposit holders with more than €100,000 in the bank are in the firing line, for a bigger hit than originally planned.

A “party source” told Reuters that those wealthy savers could be taxed more than 10%, as Nicosia tries desperately to make the sums add up.

Here’s the reason:

We’re trying to safeguard the provident (pension) funds in Cyprus Popular Bank, which are valued at over €600m.

Manos Giakoumis, head of equity research at Euroxx Securities, is monitoring RIK television, and flags up that two parties – DHSY and DHKO – have apparently proposed a 15% haircut:

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Manos Giakoumis @ManosGiakoumis

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According to RIK, #Cyprus political parties DHSY and DHKO will propose a levy of 15% on depos >€100k.

6:16 PM – 22 Mar 13

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7.02pm GMT

It’s now an hour since we had expected the debate in the Cyprus parliament to start, but no joy yet.

Clearly the government has not yet reached an agreement that satisfies its own parliament and the eurozone/IMF/ECB officials.

The latest reports are that MPs might vote on just three bills tonight, including the restructuring of Laiki, but that legislation on a savings levy would be delayed until Saturday:

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Bloomberg News @BloombergNews

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#Cyprus parliament to meet on three bills; deposits still an outstanding issue: officials

6:50 PM – 22 Mar 13

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Theodora Oikonomides @IrateGree

#Cyprus Only the bill about Laiki bank will be voted tonight, haircut bill vote postponed to tomorrow. #rbnews via @AndreasKakaris

6:43 PM – 22 Mar 13

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Updated at 7.03pm GMT

7.45pm GMT

Pissarides: Compromise tonight or tomorrow

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Christopher Pissarides Photograph: /Channel 4 News

Christopher Pissarides, the Nobel economics laureate who has been advising the Cypriot government today, has just said that he’s confident of a compromise tonight, or tomorrow morning.

Speaking to Channel 4 News, Pissarides said that the Cyprus* parliament had to accept a ‘resolution’ to one or two of its banks and agree to a levy on depositors (he wasn’t more specific). Only then could it hope for its bailout loan.

It looks like they’ll be able to reach a compromise tonight, or at best tomorrow morning.

It’s not going to be a good one, but that’s what has to be done.

Asked whether Cyprus had brought the crisis on itself by throwing its doors open to dubious Russian, Pissarides replied that Cyprus’s losses on Greek bonds had precipitated the crisis.

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Faisal Islam @faisalislam

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Pissarides: 2 biggest banks lost money in Greek debt. Caused to a large extent by haircut. so capitalise from ESM

7:09 PM – 22 Mar 13

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Faisal Islam @faisalislam

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Pissarides: looks more like blackmail from big and powerful of the weak… Is this future of Europe?

7:11 PM – 22 Mar 13

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* – not Greek, as I initially wrote. Sorry guys – thanks, dear reader who pointed it out….

Updated at 7.51pm GMT

8.01pm GMT

Vote still on for tonight

Developments! Cyprus state TV reckons that the Cypriot parliament is going to vote on nine bills tonight.

That legislation is thought to include the restructuring of the Cypriot banking sector, and the imposition of those wide-ranging restrictions on capital movement (see the full list of capital controls here)

However, the law to enforce a tax on savings will be delayed until Saturday.

And if it’s approved, the Cypriot leadership is planning to head to Brussels – presumably to make their case that their €10bn bailout should be approved.

Efthimia Efthimiou, the journalists who is monitoring Greek and Cypriot media, confirms:

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Efthimia Efthimiou @EfiEfthimiou

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#Cyprus If everything goes well tonight & tomorrow (parliament votes for the bills) Anastasiades & pols leaders will go to Brussels (RIK tv)

7:46 PM – 22 Mar 13

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8.14pm GMT

UK experts fly out to advise on Cyprus bank rescue

Britain has dispatched a task force of top civil servants to Cyprus to advise the stricken island on how to pull its banking system back from the brink of collapse.

The group of officials is led by Treasury mandarin Tom Scholar, one of Britain’s most experienced mandarins who played a key role in the UK’s own bank rescue.

My colleague Jill Treanor has the story:

The highly regarded Scholar is the Treasury’s second permanent secretary and an expert in public finance and international issues. At the time of the UK financial meltdown he was parachuted into Northern Rock after it was nationalised.

He was also a player in the 2008 bailouts of Royal Bank of Scotland and Lloyds Banking Group. He is understood to have assembled a team of experts in banking and crisis management from across government departments to help solve the problems facing the two biggest banks, Bank of Cyprus and Laiki.

Here’s the full story: Cyprus crisis: UK experts fly out to advise on bailout

Updated at 8.14pm GMT

8.22pm GMT

Eurogroup meeting callled for Sunday

News is breaking that eurozone finance ministers have agreed to hold a meeting in person, in Brussels, on Sunday.

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Luke Baker @LukeReuters

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Eurogroup finance ministers to meet in person in Brussels on Sunday afternoon, acceptable #Cyprus ‘plan B’ should be ready by then

8:12 PM – 22 Mar 13

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8.32pm GMT

Another development — Brussels has postponed next week’s EU summit with Japan, so that Herman Van Rompuy and Jose Manuel Barroso can be in Brussels to assist on Cyprus.

In a statement, they said:

The on-going efforts to find a solution for the financial situation of Cyprus require our presence in Brussels.

We reiterate the importance of EU-Japan strategic relations and would like to thank Prime Minister Abe for expressing his understanding.

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Sandra Gathmann @SandraGathmann

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#Eurocrisis in #Cyprus so critical, @BarrosoEU & @euHvR release statement postponing EU-Japan summit so they can be in #Brussels on Monday.

8:15 PM – 22 Mar 13

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8.38pm GMT

Cyprus parliament convenes

More than 12 hours late, the Cypriot parliament has convened for its emergency session.

On the agenda…. implementing capital controls, creating a solidarity fund, and restructuring the nation’s second-largest bank, Laiki.

8.40pm GMT

Capital controls and solidarity fund voted through

MPs are racing through the legislation.

They have voted to adopt a law creating a solidarity fund to pool state assets.

And they have adopted the law that gives the government power to enforce capital controls.

8.47pm GMT

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Yannis Koutsomitis @YanniKouts

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I consider the positive vote for ‘solidarity fund’ bill as an indicator for upcoming bills. Everything will pass. #Cyprus MPs are terrified

8:38 PM – 22 Mar 13

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9.04pm GMT

Historic moment for the eurozone as capital controls approved

To re-iterate, the decision to approve the capital controls bill means Cypriots are likely to soon face tough restrictions on how much money they can take out of their bank, on access to their own savings, and on their ability to transfer funds.

This is the full list of powers that could be imposed ( translated by @YiannisMouzakis this morning)

      • Restrictions in daily withdrawals
      • Ban on premature termination of time savings deposits
      • Compulsory renewal of all time savings deposits upon maturity
      • Conversion of current accounts to time deposits
      • Ban or restrictions on non cash transactions
      • Restrictions on use of debit, credit or prepaid debit cards
      • Ban or restriction on cashing in checks
      • Restrictions on domestic interbank transfers or transfers within the same bank
      • Restrictions on the interactions/transactions of the public with credit institutions
      • Restrictions on movements of capital, payments, transfers
      • Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety

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Ed Conway @EdConwaySky

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And so it begins. The EU cutting off its nose to spite its face… RT @EfiEfthimiou: #Cyprus Parliament passes bill on capital control

8:53 PM – 22 Mar 13

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9.08pm GMT

MPs are now getting their teeth into the remaining laws (seven of them, we believe) which are all based around the restructuring the country’s banking sector.

9.22pm GMT

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Photograph: Sky News

9.31pm GMT

This website, 24h.com.cy, is blogging highlights of the debate, in Greek.

It reports that Green party MP George Perdikis said he would abstain in the votes tonight (not clear if he meant all of them) due to ‘loopholes’

Perdikis went on to call for the resignation of the governor of the central bank, and the minister of finance.

9.37pm GMT

Here’s a live stream of the debate in Nicosia (sorry for the delay, better late than never)

9.44pm GMT

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Aneliya Stankova @AneliyaStankova

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Cyprus House well-behaved, rather male and engaged in passionate debate (um.. I caught Euro and pragmatic). In Ukraine it would be a tussle.

9:42 PM – 22 Mar 13

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9.56pm GMT

Bank restructuring bill approved

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The moment Cyprus’s parliament approved the bank resolution bill.

The Cypriot parliament has approved the legislation to restructure its banking sector.

That paves the way for Laiki, the nation’s stricken second-largest lender, to be split into a good bank and a bad bank.

10.06pm GMT

Here’s Reuters’ early take on the passing of the bank resolution bill in the last few minutes:

Cyprus adopted legislation on Friday allowing the government to split the island’s failing lenders into good and bad banks as it races to clinch a bailout from the European Union and avert a financial meltdown.

Officials say the law is likely to be applied first to Cyprus’s second largest lender, Cyprus Popular Bank [Laiki], to restructure it without hurting small depositors.

10.08pm GMT

OK, the parliamentary session in Cyprus is over for the night.

Updated at 11.12pm GMT

10.14pm GMT

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The Cyprus parliament after it approved tonight’s package of legislation.

10.29pm GMT

Christine Lagarde, head of the IMF, is also expected to attend Sunday’s Eurogroup meeting to discuss Cyprus.

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CNBC        

@CNBC

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ALERT: IMF Managing Director Christine Lagarde to attend this weekend’s Eurogroup meeting in Brussels regarding Cyprus.

10:14 PM – 22 Mar 13

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10.47pm GMT

Just to clarify, in case of confusion, the Cypriot parliament did not vote on the issue of a deposits tax. That will be considered on Saturday — just checked, and we don’t have any idea on timings yet.

11.13pm GMT

Closing summary

Cyprus has taken a significant step towards securing its desperately needed bailout.

The bills approved in the last couple of hours will allow Nicosia to implement a much-deed restructure its banking sector, impose capital controls to prevent a run at its banks, and set up a solidarity fund that might attract new capital.

But it’s only part of the battle. Cyprus still needs to meet the demands of international lenders, in time for the eurogroup meeting on Sunday.

It is going to be a tense, dramatic weekend for Cyprus. On Saturday, MPs are expected to reconvene at parliament to discuss and vote on the deposit levy — back on the agenda, as other options run out.

The details of that tax will be fascinating, amid rumours that big depositors will lose 15% of their wealth.

Cyprus’s president Nicos Anastasiades will then travel to Brussels to start the task of persuading eurozone officials to unlock its bailout before the European Central Bank can pull the liquidity plug on Monday.

Sunday’s meeting of the eurogroup, complete with Christine Lagarde, will be a crucial event — determining Cyprus’s fate, and the long-term future of the eurozone.

Thanks for reading, and commenting. Keep watching the website over the weekend for the latest developments.

Goodnight!

This is one of the best quotes from the last good president this country had!

It describes the Cyprus mess perfectly!

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