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THE EUROPEAN COMMISSION has appeared to rule out the prospect of revising the terms of the bailout it has offered to Cyprus – saying it is up to the government to find alternative measures that will not be vetoed by its national parliament.
Brussels has said the rejection of the proposed €10 billion bailout in the parliament yesterday – when not a single MP voted in favour of a deal that included an extraoirdinary levy on bank deposits – meant the ball was now in the court of the Cypriot government.
“Whilst this programme did not in all its elements correspond to the Commission’s proposals and preferences, the Commission felt the duty to support it since the alternatives put forward were both more risky and less supportive to Cyprus’s economy,” the Commission said in a statement.
This programme was not accepted by the Cypriot parliament.It is now for the Cypriot authorities to present an alternative scenario respecting the debt sustainability criteria and corresponding financing parameters.
The statement came after Cyprus’s interior minister said the Troika had already rejected a ‘Plan B’ compromise it had tabled.
The Commission said it would have preferred if the proposed levy on bank taxes – which has prompted banks to remain closed for a third successive day, fearing a run when depositors get a chance to withdraw their savings – had not targeted balances under €100,000 at all.
The levy, which had aimed to raise €5.8 billion, would have seen 6.75 per cent taken off the balances of all bank accounts with under €100,000 on deposit, and 9.9 per cent on other accounts. The money would have been converted into bank shares and given to the account holders.
“The Commission made it clear in the Eurogroup before the vote in the Cypriot parliament, that an alternative solution respecting the financing parameters would be acceptable, preferably without a levy on deposits below €100,000,” it said.
“The Cypriot authorities did not accept such an alternative scenario.”
The proposals ultimately put to MPs yesterday would have exempted accounts with under €20,000 from the balance, but did not increase the levies at the higher end – meaning the total made under the deal would have been about €300 million short.
Cyprus is a popular offshore banking venue with cash-rich Russian investors, leading Russia to attack the proposal. Its banks have faced capital shortfalls since incurring heavy losses on Greek government bonds, which defaulted in an EU-backed move last year.
Today the Cypriot finance minister has travelled to Moscow to meet his Russian counterpart and discuss the possibility of having the €10 billion in European loans replaced with Russian investment.
Russia has already lent €2.5 billion to Cyprus, which was due to be repaid in 2016. Cyprus has been seeking an extension on its repayment dates in parallel with its separate talks on an European bailout.
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The Cypriots have the Irish September 2008 blueprint as a guide to what not to do.
Yip, more Icelands the better.
Let them print their own paper money and back it with their income from tourism and the natural resources they have in, on and around their island.
A slap in the face to the EU. They don’t like it.
So what does the EU plan on doing if the Cypriot people don’t come up with an alternative? This is turning into a Mexican standoff very quickly and if Cyprus does get a hand out from Russia it’ll be a right kick in the nads for them. The Cypriot people have told Europe they are not prepared to abide by their terms. It’s up to Europe and not Cyprus to come up with the alternative.
Actually if you read the article, the plan that was rejected by the Cypriot parliament is not the one which was backed by the EU. How do you come up with another plan when what was rejected is not what you proposed?
Meanwhile the head of the IMF house gets raided by French police looking into illegal funding for Sarkozy election. Goes to show the corruption that’s rife in the international monetary fund and European politics in general.
Unlike Spain, Italy, Greece, Ireland or Portugal, problems in Cyprus are not going to spread across Europe. The amounts in question are a tiny fraction of European money supply. So, from that point of view, Europe could afford to let Cyprus go to the wall and leave it as a lesson for other European countries as to what could happen if you don’t accept your bailout terms.
In some ways, the “deal” itself is more dangerous. While Ireland, Greece and Portugal are now locked in to their bailouts, if I had money in a bank in Italy or Spain, I might be asking “Is this going to happen to me next?”
That said, the Italian government came up with the deposit tax unilaterally in pre-Euro days, so it may not be so much of a surprise there.
@leonard yeah when noone elects any of these EU heads & they start telling other countries what to do you know things are pretty corrupt.
Actually, Tony- it’s really up to whoever is holding the begging bowl to come up with a Plan B. And that’s Cyprus. You think the EU is going to back down with Spain & Italy watching to see what precedent is set? Not to mention Ireland, Greece & Portugal. There’ll be an 11th hour settlement. It will be dressed up as a compromise. But Cyprus will still end up throwing €6b into the pot and surrendering their Corporate tax rate.
There will be queues out the doors on those banks when they open.if they open
Ah, Mr Rehn. Always there to kick someone when they’re down. Just like Ireland. J hope the Cypriots have the balls to see this through.
Am i wrong in assuming that it is indeed cyprus who want this money?? Is that correct??
Good-de Ollie-de Rehn-de destroyer-de of-de Europe-de
Eh-excellent-eh, Eastpoint!
Blood money from the Eurocratic vampires, probably better off getting into bed with the Russians!
Indeed!
Well done to the Cypriot government. They saved their people from a tax that no one except them had ever requested :-)
Good to see thing clarified.
I wonder if that truly was the case, the cynic in me thinks that the Troika proposed the plan.
After all do any Governments in the EU make decisions alone anymore? other than the UK.
Even before the vote it was made fairly clear that the EU representative offered to only tax deposits over 100000 euros, but Cyprus refused because it would increase the tax on the larger deposits.
Given that it was before the vote and pretty clear, the government could have easily changed the proposal to exclude deposits below 100000 before voting; but they didn’t. So I think here it clearly is their initiative.
Boris , are you totally bonkers? What sense is there to be made of saying “they saved their people from a tax that no one except them had ever requested”? Talk English , boyo.
Granted, if I was to rewrite my post I would make it a bit more straight forward.
But strangely enough, other people perfectly understood what I meant.
Go figure who has a problem here …
Rory. Prepare to slam your head off a wall, and then at the last minute stop. There, you just saved yourself from slamming your head off a wall. This is what the Cypriots have done.
Ah, Mr. Rehn. Always there to kick someone when they’re down. I hope the Cypriots stand up to these financial thugs.
But which thugs? The German thugs or the Russian thugs?
Bit of a toss up Nikolas. At least the Russians don’t pretend to be what they’re not.
@ Eamonn – did you not miss the photoshhot of Putin bare-chested on horseback looking all heroic? There’s one Russian who is definitely pretending to be something he’s not.
Personally, I think he imagines himself as a re-incarnated Napoleon…
Cypriot people are apparently aware and clearly show who is in charge economically speaking – it is Moscow, not Brussels!
Let them go get the cash off Moscow so to pay for their services….!!! See how that ends up… Russia have such a record on the score of helping others out of course!!!
Do you have anything against Russian people, Declan??? Are you Sick, ha?????????
@ Sean – Nothing against Russia, but somehow putting your faith in Putin’s administration to look after the interests and wellbeing of a majority, any majority, be they Russian or Cypriot, seems a bit ill-advised.
Russia is currently a utopian paradise filled with open-hearted people free to express themselves in any way they wish, after all.
If anyone thinks this is going to end well for Cyprus they are deluded.
The Troika was damn right to insist on a depositor haircut as the majority of monies on deposit belongs to Russian gangsters. The Troika had no objection to no haircut for deposits below €100k.
Yes thanks. I don’t understand how people can defend a tax heaven within Europe which is doing money laundering for Russia – and even more so how they expect the EU to bail it out for free (using OUR tax money, the EU’s money doesn’t grow on trees) to save the Russian funds.
I know being against the EU is in fashion … But please, to a point!!
Not to defend Cypriot non-regulation, but a deposit guarantee is a deposit guarantee. The Troika should not even have entertained the idea of burning depositors below the guarantee level of €100k.
The rationale that has always been given for the bailouts and consequent austerity is that a functioning retail banking system is an economic necessity. The fact that this proposal was not immediately vetoed gives the lie to that. If individuals can’t trust that their money is safer in the bank than under the mattress, then you don’t have a retail banking system.
Absolutely Emily, except it was the Cypriots who rejected the idea of a €100k no haircut deal.
And a few points about the deposit insurance:
- it is only valid up to 100000 euros (which is the threshold the EU suggested) – difference with Ireland which is the only country in the EU where it unlimited
- it is the responsibility of the local government and not the EU
- it is a guarantee against banks bankruptcies, but not against taxes (if you tax only over 100000, it can be considered a tax on wealth)
You still have a good point that an healthy retail banking sector is crucial, but essentially I don’t think the EU proposal was going to destroy it. I think they were really after Russian dirty money and scaring the Russians away at the same time (whether it is good or not can be argued, but at least they can’t be accused of having targeted the “poor and honest” citizens of Cyprus)
Borris Ireland is a tax haven, what do you think the IFS does.
@boris – there are other tax havens in Eourope – eg Jjersey , Switzerland – and the Vatican also launders money – but maybe the new guy will ‘put a stop to that .
If Cyprus can get the money from Russia or China – like we should have – they may well – nearly certain to get better deal than with IMF – who also have a political agenda – which is Neo liberal and has brought ruin whererver it has gone – or even come from [ the US ]
if EU were after russia dirty money – which they may have been – why do they not go after all the ”dirty ” money ” in the City of London . I think it is actually better to deal with Russia or China that Troika – whose record is atrocious . The Chinese are business people – and going by waht they do in Africa [ compared to US ]] they should be ok to deal with . Ccyprus has a chnce here to rell the Troika to f### off – they should take it .
@ Jim – Those “other” tax havens tend to look down on the new Russian oligarchs as crass “new money”. It’d be far better for Russia to have a tax haven that isn’t snooty and is completely under their thumb.
The ordinary Cypriots have are not making a heroic stand for the little man, they’re being used as a pawn in Putin’s desire to regain territory lost to Europe post-Soviet collapse.
I’m starting to come around to the idea that it’s just one big p**sing contest in Putin’s megalomaniacal mind.
One things for sure, the Cypriots are the losers in all of this. Don’t cheer them on, as you’d bve cheering on their own implosion.
This is the first of all the dominoes
After the last 4 years who would have thought the most significant next stage in this evolving economic farce would have been played out in Cyprus. Let see who blinks first. Think about it though. There can’t be a ‘winner’ on either side now
The next few days in Cyprus could show us what would have happened if we took the populist advice in Sept ’08 and gave the two fingers to the EU, defaulted and let the banks fail.
Those two banks in Cyprus now look likely to stay closed until mid next week. There will be a run for sure, it’s a case of can cyprus stave off a default
Somebody Rehn that guy in. He’s just a servant if the banks
Purple monkey dishwasher
at least the cypriot government look after its citizens and told germany to fk off now let see if its a default and the euro falls or will it be nicosia way not frankfurts way….pity our traitors applauded this deal doin its masters bidding…kinda shows you what type of individual is doin our negotiating in brussels,imf and ecb
The Cypriot government was not looking after it’s people. It was capitulating to their Russian clients.
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