The meeting of euro zone finance ministers in Brussels is finally expected to begin after a 4-hour delay that was preceded by face-to-face negotiations between the Cyprus leadership and its international lenders to work out a 16 bln euro bailout deal that caused a rift among EU members, as well as Russia, and may have caused irreparable damage to the stability of the European currency.
President Nicos Anastassiades has reportedly resisted IMF demands that Bank of Cyprus, the island’s biggest lender that faces default in the absence of ample liquidity, carry the burden of an additional 9 bln euros in debt carried from the Greece operations of Cypriot banks that were almost handed debt-free to Piraeus Bank. Talks for the takeover of 300 branches and a 20 bln euro portfolio by Piraeus have now been halted.
News reports suggest that EU President Herman Van Rompuy and European Council chief Jose Manuel Barroso were meeting alone with Anastasiades, while ECB chairman Mario Draghi and Council member Asmussen visited finance minister Michael Sarris.
The IMF wants to repatriate as much money as possible to the European Liquidity Assistance facility regulated by the ECB, while Bank of Cyprus would also have to take over the “good bank” operations in Cyprus of the Popular Laiki Bank, with the only finance coming from a 25% levy on all savings over 100,000 euros at Bank of Cyprus. The Eurogroup would then release a 10 bln euro bailout to pay down a runaway public sector deficit, a 1.4 bln euro government bond that matures in June and to support the banking system.
Russian depositors have been upset with the bank levy that initially prompted anger from the Kremlin that refused to provide assistance to Cyprus, but later changed its tune as it appears that some 20 bln euros of Russian-owned deposits may end up back in Russia or Ukraine.
The Eurogroup meeting is expected to conclude on the issue of the Bank of Cyprus 9 bln euro liquidity demand, as well as the 22-25% levy on bank deposits, and other measures that would make the bailout repayment sustainable for tiny Cyprus that is being obliged to shrink its banking sector and hike its competitive corporate tax rate from 10% to 12.5%.
