World | Business

Europe's Central Bank Issues Cyprus Ultimatum

NPR | March 21, 2013 11:42 a.m.

Contributed By:

Scott Neuman

The clock is ticking on Cyprus’ fiscal cliff.

The European Central Bank has given the Mediterranean country just four days to come up with its own bailout plan or a eurozone lifeline to its struggling banks will be severed.

The ultimatum comes after Cypriot lawmakers on Tuesday rejected a highly unpopular proposal put forward by the European Central bank, the European Commission and the International Monetary Fund to give the country’s banks $13 billion in exchange for a steep levy on their savings accounts.

Since then, the Cyprus government has been struggling to come up with a ‘Plan B’ that to satisfy international lenders. If they can’t do it by Monday, the ECB will pull the plug on Cypriot banks, which would likely precipitate a collapse of the island’s financial institutions and send shock waves through European and world markets.

NPR’s Joanna Kakissis, reporting from the Cypriot capital Nicosia, says the country’s banks were drained by exposure to the Greek debt crisis. But EU and IMF leaders see the island as a haven for offshore investment, especially by wealthy Russians, and want depositors to pay for part of a bailout.

Banks have been closed until Tuesday to prevent a bank run, but ATMs have been restocked so people can withdraw money, Kakissis says.

The parliament in Cyprus could vote on a plan to raise the $7.5 billion as early as Thursday.

Averof Neophytou, the deputy leader of Cyprus’ ruling Democratic Rally party, tells NPR that there is a plans being considered that would create an “Investment Solidarity Fund” to issue emergency bonds. The measure would appeal for donations from ordinary Cypriots, businessmen and foreign investors, The Associated Press reports.

The government would issue bonds on the solidarity fund, “but some sort of levy on deposits may still be necessary,” says John Psaropoulos, reporting for NPR from Nicosia.

The Cypriot Orthodox Church has already offered to mortgage its own assets and buy government bonds.

Meanwhile, talks on a bailout from Russia are ongoing, with the Cypriot Finance Minister Michalis Sarris meeting in Moscow since Tuesday in hopes of forging a deal.

According to the AP:

Russia is likely to pitch in, though its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of the 68 billion euros ($88 billion) in deposits in Cyprus’ oversized banking sector are held by Russians.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Comments

blog comments powered by Disqus
Thanks to our Sponsors:
become a sponsor
Thanks to our Sponsors
become a sponsor