Cyprus and the Troika have agreed to a 20 per cent tax on deposits over 100,000 euros at the Bank of Cyprus and 4 per cent on deposits held at other banks.
A senior Cypriot official told Reuters that a plan to tap nationalized pension funds would not be a part of a plan to raise billions of euros in return for a bailout from the European Union. Cyprus said earlier on Saturday that it was looking at seizing a quarter of the value of big deposits at its largest bank in order to raise such funds.
“Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available. Today, there are only hard choices left,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.
Cyprus is scrambling to come up with €5.8 billion by Monday, or face being kicked out of the Eurozone. The cash is a prerequisite for a further €10 billion in bailout funds.
Lawmakers’ rejection of a previous proposal to tax all bank deposits prompted the European Central Bank to threaten to cut off emergency funding to Cypriot banks unless a deal was reached by March 25. Banks have been shut all week, and are due to reopen on March 26.
The timing of the Cyprus crisis is of utmost importance, as in fact, it means a lot for the government of Angela Merkel, who may virtually keep her post by keeping the island afloat financially, RT news editor Ivor Crotty pointed out.
RT: So what held it all up? Why couldn’t they reach a deal?
Ivor Crotty: This goes back to the EU-Russia summit last year when the Eurocrats basically told Russia that Cyprus would be their problem to solve. Russians had a look at it and said, “No, not really, we think it’s a eurozone problem”, but they had stamped two-and-a-half billion (USD) to keep the island float. So timing is crucial here. A change of government in Cyprus last year delayed any possibility for a resolution, but it crucially brought any chance of a deal into the German election cycle, which is taking place in September this year. And this is why Merkel is playing hardball: she needs votes. And the SPDR opposition have identified Cyprus as a wage issue. Her uncompromising stance which is backed the raid on privately-held deposits in Cyprus forced the Cypriots to go to Moscow looking for help.
RT: But I thought it was some sort of EU limit of money which Cyprus can borrow from now – inside the EU, anyway.
IC: At this stage the Cypriots are pretty much ready to talk to anybody. The Russia-Cyprus connections are well-known, but it’s not that Russia is the only one.
RT: If they’ve been talking for a year, why is it taking so long to reach some kind of deal?
IC: Again, this comes back to the change of government inside Cyprus last year, that it wasn’t possible for them to make a deal while the political transition was going on. Right now, the Russians are looking at the situation, and basically sent the Cypriot ministers packing with their bags empty for two reasons: firstly, specifically, is that this is a eurozone problem. Russians aren’t going to get involved in what is ostensibly an internal eurozone contagion issue. But secondly, they don’t think that Cyprus has hit rock bottom yet. Merkel is playing hardball now, and she’s going to drive that issue into the ground, and nobody – not the Russians, nor the Chinese – aren’t going to touch it until Merkel’s game has reached its zenith.
RT: That carrot was being dangled to Russia yesterday about Cyprus’s gas reserves – Russia wasn’t interested?
IC: There’s a couple of interests here. Cyprus has been confirmed to be nowhere near filling that debt hole, so it looks like it’s going to be a very long weekend at the holds of Brussels in Berlin.