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Eurozone 'ready to discuss' new Cyprus bailout

21 March 2013, 22:21 CET
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(BRUSSELS) - Eurozone finance ministers extended a Cypriot olive branch late on Thursday, as their leader said currency partners were willing to work with Nicosia on new plans to make work a bailout that re-draws the island's stricken banking sector.

"The Eurogroup stands ready to discuss with the Cypriot authorities a draft new proposal, which it expects the Cyprus authorities to present as rapidly as possible," Eurogroup chairman and Dutch Finance Minister Jeroen Dijsselbloem said in a statement after a two-hour conference call with peers.

As the ministers huddled around their video screens, the Cyprus cabinet was in crisis session bidding to approve a "Plan B" after an earlier agreement with the EU and IMF collapsed amid anger over a weekend raid on savers that Dijsselbloem says should have been understood as a "wealth tax" aimed principally at mainly Russian oligarchs' investments.

The European Central Bank has given Cyprus until Monday to find a way out of a crisis that has left Moscow furious over frozen government agency accounts with banks in the offshore finance centre shut for a full week, the worst affected imposing radically lowered cash withdrawal limits.

With EU sources semi-openly floating a willingness to cut Nicosia loose if it doesn't clobber a finance industry Germany and others associate openly with the onward eurozone circulation of ill-gotten money-laundering gains, and a nervous crowd gathered outside the Cypriot parliament, Dijsselbloem's remarks served as an inducement to lawmakers there.

"The Eurogroup would subsequently, on the basis of a Troika analysis that needs to be undertaken, be prepared to continue negotiations on an adjustment programme," Dijsselbloem added, teeing up a tense weekend of negotiations from Moscow to Nicosia and Brussels or Berlin.

However, in what analysts have warned is a dangerous game of Russian roulette, he also underlined that any new plan to fill a six-billion-euro hole and so unlock up to 10 billion in eurozone and IMF loans between now and 2016 would need to "respect" other demands already made by creditors.

Rapid passing of legislation then provides a further hurdle in a race against time to prevent a collapse in the island's banking sector -- one heavily based on deposits rather than credit, and so potentially more vulnerable than other victims during the debt crisis to runs on weak banks.

As the political point-scoring continued, Dijsselbloem finished by insisting that ministers "reaffirmed the importance of fully guaranteeing deposits" below the sensitive threshold of 100,000 euros ($130,000) -- the cut-off point for European Union legal protections.


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