Cyprus sent two of its key cabinet ministers to Moscow to broker a fresh rescue deal, but have so far had little success as Russian depositors fear been victimised in a “bail in” plan that will see a tax of more than 10% on their savings held on the island.
Finance Minister Michalis Sarris has been trying to secure a second loan from Russia, this time for 5 bln euros, after EU, ECB and IMF lenders imposed harsh terms on Cyprus, supposedly to punish it for harbouring Russian oligarchs and laundered money.
According to Moody’s, all Russian individual and corporate deposits on the island, including in Russian-owned banks, do not exceed 25 bln euros, more than half as collateral for business loans.
Cyprus parliament threw out a bailout plan on Tuesday, with fears of a default higher than ever, forcing banks to remain shut throughout the week to prevent a bank run on savings.
Evdokimos Xenophontos, vice president of the island’s largest lender, Bank of Cyprus, urged politicians to reconsider their rejection, but this time to propose a levy only on native Cypriot depositors, so as to prevent a massive exodus of Russians, currently the second biggest market of tourists and a significant contributor to the island’s financial services sector.
OPTIMISTIC
Xenophontos said after a meeting with President Nicos Anastasiades that he was optimistic a deal would be reached and the crisis could be overturned.
“We should be ready to make sacrifices and I’m referring to Cypriot savers. We cannot do this to the foreign depositors who have trusted us. This would be robbery.”
“If the foreigners leave, they will never come back. But if we protect them, even if they leave, they will return,” he said, adding that deposits below 100,000 euros should be spared.
The European Central Bank's chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless the country took a bailout quickly.
"We can provide emergency liquidity only to solvent banks and… the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector," Asmussen told German weekly Die Zeit.
Austrian Chancellor Werner Faymann said he could not rule out Cyprus leaving the euro zone, although he hoped its leaders would find a solution for it to stay.
European Parliament chief Martin Schulz said the “decision of the eurogroup on Cyprus was unwise and resulted in major problems for the eurozone. We need an EU solution, not external,” hinting that Cyprus should avoid aid from Russia.
Cyprus Trade and Energy Minister George Lakkotrypis is also in Moscow, officially for a tourism exhibition, but fuelling talk that access to untapped offshore gas reserves could be on the table.
GAZPROM BACK IN PLAY?
Cyprus excluded giant Gazprom from the second licensing round of its offshore natural gas exploration that was awarded to higher-bidders French Total, Italy’s ENI and Korea’s Kogas.
US-based Noble Energy and Israel’s Delek and Avner oil companies are close to a second exploratory drill half-way between Cypriot and Israeli shores, where large reserves have been discovered, raising hopes that Cyprus will be able to earn up to 4 bln euros a year from these gas fields, but not before the end of the decade.
Reports suggested that Lakkotrypis would try to revive Russian interest in three offshore blocks west of the island and close to territorial waters claimed by Turkey.
The Cypriot minister and Sarris are also talking to potential investors to consider taking over nationalised Laiki Popular Bank, bailed out by the state to the tuen of 1.79 bln euros last year to its excessive exposure to Greek government bonds that underwent a drastic haircut after EU leaders agreed to a writedown of about 70%.
However, although Finance Ministry Director General Andreas Charalambous confirmed on Tuesday that Sarris was in Moscow to “meet with investors”, government spokesman Christos Stylianides denied a Greek media report that a deal had been reached for the sale of Laiki Popular.
“FAIR” TO EXCLUDE SMALL SAVERS
European paymaster Germany’s Chancellor Angela Merkel said it was up to the Cypriot government to come up with an alternative proposal but it was fair to expect savers with deposits over 100,000 euros to contribute to the bailout.
President Anastasiades, barely a month in the job, met party leaders and the governor of the central bank to review a "Plan B".
He later met officials from the "troika" of the EU, European Central Bank and International Monetary Fund.
The international lenders also want Cyprus to privatise or at least sell some of its assets held by profitable government services such as telecoms, electricity and the ports, in order to make any bailout plan sustainable. Unions and civil servants are opposed to any such “sell off”.
Meanwhile, the European Commission said on Wednesday “it is now for the Cypriot authorities to present an alternative scenario, respecting the debt sustainability criteria and corresponding financing parameters.”
Even British Prime Minister David Cameron joined the debate telling the Commons that London “made it very clear to the Cyprus government that when you have a deposit protection scheme, such as the one the UK and all of Europe have, it should be respected.”
Cameron pointed out that the UK is not involved in bailout discussions as it is not a euro member country. That’s the reason, he added, that the UK would not be contributing up to 1 bln pounds which it would otherwise have been liable to.
Cameron also reiterated his government’s “absolute guarantee” that any Briton in Cyprus sent by the government would not lose out in terms of earning or savings.
The UK has already shipped about 1 mln euros worth of cash payments to its military personnel based on the island, while pensioners were being urged to consider receiving their payments back in Britain.
