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Cyprus: Negotiations About “Plan B“ Today

Published: March 22, 2013; 11:28 · (Vindobona)

After days of negotiations in Moscow, Cyprian Finance Minister had to return empty-handed. Talks about “plan B” will continue today.

Cyprus: Negotiations About “Plan B“ Today / Picture: © Vindobona.org

Russia is not willing to help Cyprus. This is the result of days of negotiations in Moscow. Cyprian Finance Minister Michaelis Sarris had to return to his county empty-handed. His Russian counterpart, Anton Siluanow announced on Friday that no agreement was found. Furthermore he declared that Russian enterprises were not interested in Cyprian gas reserves. Russia is now waiting for a decision by the EU, European Central Bank (ECB) and the International Monetary Fund (IMF).

Today, the parliament of Cyprus is going to vote on an emergency rescue package for the country, which is just one step away from bankruptcy.

In the meantime, a very heated discussion among politicians in the Eurozone has arised. Luxemburg’s Finance Minister Luc Frieden warned of forsaking Cyprus because the stability of the whole Eurozone was endangered. He continued to suggest lowering the amount of money (€ 5.8bn) Cyprus was supposed to come up with by a levy on all bank clients adding that one could discuss of how much the stability of the Eurozone was worth. German Federal Minister of Finance, Wolfgang Schäuble dismisses this idea of Cyprus not reciprocating financial aids fervently. Yet, both he and Chancellor Angela Merkel also reject the proposal of using pension funds as a financial source. On Wednesday, Cyprus’ President Nikos Anastasiaded had a meeting with french President Francois Hollande to discuss the economic situation and ask Paris for help in order to find a “plan B” and gain the required capital which is a condition to obtain the EU bail-out package. Before that, french government spokeswoman Najat Vallaud-Belkacem has critcized the aid plan and called it a mistake. She considers the resitance from the population to protest against the levy on assets of small savers as legitimate.

After the EU aid package was rebuffed by the parliament, Cyprus is now working on plan B. Thus it was decided to split the second biggest banking institute, Popular bank (Laiki bank) as announced by Govenor of the Central Bank of Cyprus, Panicos Demetriades. Assets up to the amount of € 100,000 were save. Further plans were presented on Thursday. Among them is the establishing of a new fund since the compulsary charge on all bank clients has not been approved. This so-called “national solidarity fund” is supposed to contain state assets, among them future intakes of natural gas deposits and money from pension funds but also guarantees granted by the Cyprian church and other institutions. Gold reserves by the Central Bank of Cyprus might be added.

There is, however, a great concern by the government that a bank run might happen once the banks will re-open on Tuesday next week. The ECB is therefore planning to take measures in order to avoid capital flight. Controls like this would imply that transfers to foreign countries would have to be approved by the Central Bank of Cyprus first. Citizens of Cyprus would only be possible to draw a certain amount of money from their accounts for a certain period of time. Furthermore, the question arose whether or not to freeze bank assets completely and grant transfers to foreign countries only with the express permission of the Central Bank of Cyprus. The permission would probably be only given to businesses that needed to pay their bills.

In all likelhood, the ECB will control the movement of capital even after the Cyprian government has managed to agree on a bail-out package with the EU, ECB and IMF at the beginning of next week. According to Handelsblatt, the ECB will make sure that the control of capital traffic is socially viable. Every citizen is supposed to receive the amount of money needed which means the payment of all social benefits like pensions.