UPDATE 1-Cyprus throws bailout into disarray, seeks Russian help

Wed Mar 20, 2013 3:42am EDT

* Parliament votes 36-0 to reject tax on deposits

* Cypriot finmin in Moscow to seek aid

* Cypriot, Russian presidents talk by phone

* EU says no bailout unless Cyprus depositors contribute

By Michele Kambas and Karolina Tagaris

NICOSIA, March 20 (Reuters) – Cypriot leaders held crisis talks on Wednesday to avert financial meltdown after rejecting the terms of a European Union bailout and throwing efforts to rescue the latest casualty of the euro zone debt crisis into disarray.

The rejection of an unprecedented levy on bank deposits, a condition of a 10 billion euro ($ 12.89 billion) EU bailout, cast the 17-nation currency bloc into uncharted waters after Greece, Portugal, Ireland, Spain and Italy all accepted biting austerity measures over the last three years to secure European aid.

President Nicos Anastasiades, barely a month in the job, gathered party leaders and the governor of the central bank at his office. He was also due to hold a cabinet meeting and talks with officials from the EU, European Central Bank and International Monetary Fund.

Finance Minister Michael Sarris, however, was in Moscow, amid mounting speculation that Russia could step in with a rescue plan to safeguard high levels of Russian deposits in Cypriot banks.

Cyprus has asked Russia for a five-year extension of an existing loan of 2.5 billion euros that matures in 2016, and a reduction in the 4.5 percent interest rate.

Sarris told reporters in Moscow: “We’re hoping for a good outcome, but we cannot really predict.”

Anastasiades spoke with Russian President Vladimir Putin by phone on Tuesday after the island’s tiny legislature threw out the proposed tax by 36 votes to 0 with 19 abstentions, to the cheers of demonstrators.

The stock exchange and banks remained closed.

Outraged Cypriots had emptied cash machines at the weekend after news broke that they would be taxed on their savings to raise 5.8 billion euros in exchange for the bailout, breaking a taboo in Europe’s handling of the stubborn debt saga so far.

The crisis is unprecedented in the history of the east Mediterranean island of 1.1 million people, which suffered a war and ethnic split in 1974 in which a quarter of its population was internally displaced.

While Brussels has emphasised that the tax measure was a one-off for a country that accounts for just 0.2 percent of Europe’s output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.

Even the Church of Cyprus offered to help.

“The entire wealth of the Church is at the disposal of the country … so that we can stand on our own two feet and not on those of foreigners,” Archbishop Chrysostomos said after meeting Anastasiades early on Wednesday,

The Church of Cyprus is a major shareholder in Cyprus’s third-largest domestic lender, Hellenic Bank

GAS DEPOSITS

Leaders of the currency union said the bailout offer still stood, provided the conditions were met.

The European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, crippled by their exposure to the financial crisis in neighbouring Greece.

“The ball is in Cyprus’s court,” Dutch Finance Minister Jeroen Dijsselbloem, who chairs the euro zone group of finance ministers, said after Tuesday’s vote.

Euro zone paymaster Germany, facing an election this year and increasingly frustrated with the mounting cost of bailing out its southern partners, said Cyprus had no one to blame but itself for the gravity of the situation.

“For an aid programme we need a calculable way for Cyprus to be able to return to the financial markets. For that, Cyprus’s debts are too high,” said Germany’s finance minister, Wolfgang Schaeuble.

With Sarris in Moscow, there was mounting speculation that Russia might seek to exploit the crisis, having reacted angrily to the proposed bank levy.

Some reports suggested Russian oil and gas behemoth Gazprom had mooted its own assistance plan, in exchange for exploration rights to Cyprus’s offshore gas deposits.

Noble Energy reported a natural gas recovery of 5 to 8 trillion cubic feet of gas south of Cyprus in late 2011, in the island’s first foray to tap offshore resources.

Russian authorities have denied the Kremlin plans to offer more money.

An important issue in negotiations has been the high level of deposits held in the island’s banks by non-EU citizens and companies, notably from Russia, where Cyprus has established itself as a major provider of offshore financial services.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a “Trojan donkey” for Moscow inside the European Union since it joined in 2004.

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Reuters: Financial Services and Real Estate

UPDATE 1-Cyprus throws bailout into disarray, seeks Russian help

UPDATE 1-Cyprus votes for president as clock ticks on bailout deal

Sun Feb 24, 2013 1:02am EST

* Vote pits markets-backed candidate against anti-austerity opponent

* Cyprus ravaged by worst crisis in four decades

* New leader needs to hammer out urgently needed aid deal

By Michele Kambas

NICOSIA, Feb 24 (Reuters) – Cypriots started voting in a runoff on Sunday to elect a president who must clinch a bailout deal for the island nation to avoid a financial meltdown that would revive the euro zone crisis.

Conservative leader Nicos Anastasiades, who favours hammering out a quick deal with foreign lenders, is favoured to win against Communist-backed rival Stavros Malas, who is more wary of the austerity terms accompanying any rescue.

Financial markets are hoping for an Anastasiades victory that speeds up a joint rescue by the European Union and International Monetary Fund before the island runs out of cash and derails fragile confidence returning to the euro zone.

The 66-year-old lawyer took more than 45 percent of the vote in last Sunday’s first round, easily beating Malas who took 27 percent.

The winner takes the reins of a nation ravaged by its worst economic crisis in four decades, with unemployment at a record high of 15 percent. Pay cuts and tax hikes in preparation for a bailout have further soured the normally sunny national mood.

Newspaper headlines reflected the grim outlook, warning of an uphill climb for the new president. One described it as walking towards “Calvary”, the location where, according to Christian scripture, Jesus Christ was crucified.

“He will be plunged straight into the deep end, and failure is not an option,” the Simerini daily wrote. Phileleftheros, another daily, said: “Its a long road ahead, and insight and vision is needed.”

Like candidates, newspapers also called on people to vote. Fewer voters were expected to show up at the polls than on Feb. 17 after the third-placed candidate refused to back either contender in the runoff, boosting Anastasiades’s chances.

“Whatever happens in this vote, the day after is going to be very difficult for Cyprus,” said Demetris Charalambous, a 56-year-old convenience store owner. “People are really depressed. Business is bad, we are at risk of shutting down.”

Prospects for a quick bailout that revives the sinking Cypriot economy – which the EU says will shrink a worse than expected 3.5 percent this year – have been equally grim.

Talks to rescue Nicosia have dragged on eight months since it first sought help, after a Greek sovereign debt restructuring saddled its banks with losses. It is expected to need up to 17 billion euros in aid – worth the size of its entire economy.

Virtually all rescue options – from a bailout loan to a debt writedown or slapping losses on bank depositors – are proving unfeasible because they push Cypriot debt up to unmanageable levels or risk hurting investor sentiment elsewhere in the bloc.

German misgivings about the nation’s commitment to fighting money laundering and strong financial ties with Russia have further complicated the negotiations.

END UNCERTAINTY

Longstanding anger over the island’s 40-year-old division into the Greek-speaking south and Turkish north has been relegated to a distant second as an election issue this year, with both candidates vying to portray himself as the right man to lead the country out of its financial quagmire.

“We must end the uncertainty and give Cyprus back its lost international credibility and its prestige in Europe,” Anastasiades said as he ended his campaign.

A heavy smoker known for his no-nonsense style, Anastasiades is widely respected but suffered political humiliation nine years ago when he supported a United Nations blueprint to reunify the island that was later rejected by the public.

He has suggested the island may even need a bridge loan to tide it over until a rescue is nailed down.

His younger rival Malas is handicapped by the support of the incumbent Communists who are perceived as having mismanaged the economic crisis and a munitions blast in 2011.

Still, he is expected to get a boost from his pledges to drive a hard bargain with lenders and anti-austerity rhetoric that resonates with many Cypriots struggling to make ends meet.

“I want to see someone worthy win, who will cut out cronyism and be decisive about the problems we have,” said George Nearchou, 58, an unemployed electrician.

“I am however very worried about austerity, people are very angry. I see a popular uprising.”

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Reuters: Bonds News

UPDATE 1-Cyprus votes for president as clock ticks on bailout deal