Cypriots cave in to Troika

Too early to draw any conclusions

Cyprus, Troika agree to 20% tax on deposits over 100,000 euros at Bank of Cyprus

Cyprus and the Troika have agreed to a 20 per cent tax on deposits over 100,000 euros at the Bank of Cyprus and 4 per cent on deposits held at other banks.

RT,

23 March, 2013

A senior Cypriot official told Reuters that a plan to tap nationalized pension funds would not be a part of a plan to raise billions of euros in return for a bailout from the European Union. Cyprus said earlier on Saturday that it was looking at seizing a quarter of the value of big deposits at its largest bank in order to raise such funds.

"Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available. Today, there are only hard choices left," European Union Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.

Cyprus is scrambling to come up with €5.8 billion by Monday, or face being kicked out of the Eurozone. The cash is a prerequisite for a further €10 billion in bailout funds.

Lawmakers' rejection of a previous proposal to tax all bank deposits prompted the European Central Bank to threaten to cut off emergency funding to Cypriot banks unless a deal was reached by March 25. Banks have been shut all week, and are due to reopen on March 26.

Earlier on Saturday, at least 1,000 bank workers in Cyprus hit the streets of the country’s capital of Nicosia. The demonstrators marched against the latest bailout measures taken by the country’s central bank.

“You destroy our work and steal our pensions,” demonstrators chanted as they marched to the Cypriot Parliament. One protester held a banner which read, “Hands off pension funds.”

All ages were present at the demonstration, with many parents pushing their children down the street in strollers.

“I’ve been working for 20 years and I’ve paid all the taxes of all my pension contributions and every Euro. Now I run the risk of losing my job and my pension, and I will have no money to support my children,” Cyprus Popular Bank employee Angela Panayotou said, as quoted by Ria Novosti.

Panayotou, who brought her five children along to the rally, says she believes plans to split the Cyprus Popular Bank in two to be a political move.

“We are convinced that the bank is viable, and it there’s no need to close it,” she said.

The Cypriot parliament has adopted a new bailout plan which is comprised of nine laws about the recovery of the country’s financial system. One of the laws gives the Cypriot Central Bank special authorities due to concerns the financial system may collapse.

Bank workers shout slogans during a protest outside Cyprus presidential palace in Nicosia on March 23, 2013. (AFP Photo / Patrick Baz)

Cyprus Deal... Or No Deal: "Anonymous" Rumor vs Euro Commission

http://www.zerohedge.com/news/2013-03-23/cyprus-deal-or-no-deal-anonymous-rumor-vs-euro-commission

The conflicting headlines continue to spew forth from the union of European nations. Reuters CYBC is reporting that Cyprus has agreed a 'deal' with EU/IMF lenders a 20% levy on deposits over EUR100,000 for Bank of Cyprus and a 4% levy on deposits of the same amount at other lenders (and the Cypriots have dropped plans to nationalize pension funds) citing a senior Cypriot official (who demanded anonymity). At the same time, EU Commissioner Olli Rehn emailed a statement saying that a 'deal' has yet to come forth:

*REHN SAYS COMMISSION WORKING HARD TO FIND CYPRUS SOLUTION

*REHN SAYS ONLY HARD CHOICES LEFT FOR CYPRUS

*REHN SAYS `ESSENTIAL' CYPRUS SOLUTION REACHED ON SUNDAY NIGHT

So who does one believe? And with no market open to test this strawman, what will the decision-makers have to guide their choices? One thing is for sure:

*REHN SAYS 'NO LONGER ANY OPTIMAL SOLUTIONS AVAILABLE'

*REHN SAYS ONLY HARD CHOICES LEFT FOR CYPRUS

Via Bloomberg,

“we recognise the progress now being made by the Cypriot government towards a solution which can pave the way for an agreement on a financial assistance program”

“intensive work and contacts will continue in the coming hours”

“it is essential that an agreement is reached by the Eurogroup on Sunday evening in Brussels on a financial assistance program for Cyprus”

“this agreement then needs to be swiftly implemented by Cyprus and its euro-zone partners”

“events of recent days have led to a situation where there are no longer any optimal solutions available”

“there are only hard choices left”

Just bear in mind the Guardian's consistently anti-Russian bias

Cyprus bailout: Kremlin 'could punish Europe' in reprisal for bank levy

Fears mount that Russia could act against European companies if charge on deposits hits €30bn Russian investments

the Guardian,

23 January, 2013

Fears are growing of Russian reprisals against European businesses as EU authorities desperately seek a deal to save the Cypriot economy by imposing a 25% levy on bank deposits of more than €100,000.

As the island scrambled to put together a rescue programme, its finance minister, Michalis Sarris, said "significant progress" had been made on the latest levy plan in talks with officials from the European Union, the European Central Bank and the International Monetary Fund.

The government in Nicosia faces a deadline of Monday to reach an agreement or the European Central Bank says it will cut off emergency cash to the island, spelling the likely financial collapse of its banking system and a potential exit from the European single currency.

However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: "If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.

"Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy."

Nekrassov rejected suggestions that Russia might hit back by cutting off gas supplies, a tactic the country used in 2009 after the collapse of talks with Ukraine to end a row over unpaid bills and energy pricing.

"Gas is no longer a weapon," Nekrassov said. "When Russia did that before, it realised that the foreign energy lobby reacted and efforts to find alternative sources were increased. If Russia kept threatening, it knows that nobody would be buying its gas in 20 years' time."

Mike Ingram, an analyst at City broker BGC Partners, said: "In Russia, historically, if they want an asset they just grab it. If they want cash out of a [EU] business [in Russia] they just create a tax bill or raid offices and make your life unpleasant. They could also make life difficult diplomatically on issues such as Syria. They might also rattle a few sabres over deployment of the missile defence system."

In a week of high-stakes brinkmanship, the EU, ECB and IMF – the so-called "troika" behind the rescue of five southern European countries – had refused to budge on its insistence that Cyprus raise €5.8bn of its own revenues to qualify for the bailout aid.

The latest levy plan reflected Nicosia's fast-dwindling options.

Last week Cypriot MPs overwhelmingly rejected a similar levy proposal – even after it was adjusted to remove any charge on savings below €20,000 – triggering a week of tumult as Nicosia tried and failed to win financial support from Russia instead.

The tax on savings is unprecedented in Europe's handling of a debt crisis that has spread from Greece to Ireland, Portugal, Spain and Italy. The crisis has reignited uncertainty about the future of the eurozone just as many EU leaders began to believe the worst was over for the single currency.

On Saturday, uncertainty shrouding the island turned from unease on the streets, where people have rushed en masse to withdraw money from cash machines, to scenes of panic-buying.

The inept handling of the crisis by politicians has exacerbated a dark mood with many Cypriots fearing that they stand to lose life savings following the government's decision to also raise funds by restructuring Laiki, the island's second biggest bank.

Marios Panayides, 65, a protester outside the Cypriot parliament said: "Our so-called friends and partners sold us out. They have completely abandoned us on the edge of an abyss."

Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. "At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week."

Cypriots fear the damage the levy would do to the country's offshore banking industry. Much of the Cypriot banks' capital was wiped out by the collapse of investments in Greece, the epicentre of the euro zone debt crisis.