It’s haircut time for Cyprus’ largest bank depositors, as the island’s banking regulators hammered out an 11th-hour bailout deal to avert financial collapse last night.
The country agreed to a 20 percent tax on savings above 100,000 euros at failing No. 1 lender Bank of Cyprus and a 4 percent tax hit across the board on all 100,000-euro-and-over deposits at other banks in order to shore up its crippled banking sector hit by exposure to the Greek debt crisis.
Cyprus needs to raise 5.8 billion euros in exchange for a 10 billion euro EU lifeline to keep the country’s economy afloat.
Government officials held talks through the day at the finance ministry with Cyprus’ “troika” of lenders — the EU, European Central Bank and International Monetary Fund. Angry demonstrators outside chanted “resign, resign!”
“Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available,” EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. “Today, there are only hard choices left.”
Cypriot finance minister Michael Sarris — fresh from futile three-day meetings in Moscow trying to win help from Russia, whose citizens have billions of euros at stake in Cypriot banks — reported “significant progress” in talks with international lenders, with the clock running down to a deadline tomorrow for Cyprus to clinch a bailout deal with the EU or lose emergency funding for its stricken banks.
Cyprus’ leaders are scheduled to be in Brussels tonight to present their plan to the heads of the EU, the ECB and the IMF, in a sign a deal might be near.
“Hopefully, by tomorrow in Brussels we will have the agreement of our partners,” Averof Neophytou, deputy leader of the ruling Democratic Rally party, told reporters yesterday.
Arriving at the troika talks, Andreas Artemi, chairman of Bank of Cyprus, was asked if a 20 percent haircut was being considered on uninsured deposits. He replied: “I don’t know that yet.”
The tottering Cypriot banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros — enormous sums for an island of 1.1 million people.
Any bailout measures including taxing deposits must pass the Cypriot parliament, which vetoed a smaller haircut last week.