Brussels, 20/03/2013 (Agence Europe) - All eyes are now on Cyprus after the Cypriot parliament landslide rejected the €10 billion aid programme and its levy on savings to raise €5.8 billion (zero votes in favour, 36 against and 19 abstentions). The president of the European Council, Herman Van Rompuy, called for a rapid solution, warning that time was pressing and it was a question of weeks now. The previous Cypriot government said that it had covered the country's financing needs until the end of May and a repayment of €1.4 billion is due on 3 June 2013.
Ball now in the Cypriot court. The Commission says it is up to the Cypriot government to come up with a counter-proposal to the aid programme agreed last weekend and the counter-proposal must meet the debt sustainability and financial parameter requirements. In other words, European politicians are keeping an open mind about exactly what type of solution would be acceptable, but the eurozone and IMF will not lend more than €10 billion, 55% of the country's GDP. Any higher loan might not be sustainable and therefore Cyprus has to find a way to drum up the remaining €5.8 billion to find the full seventeen billion required.
A Cypriot source says the options on the table include Russia buying a number of Cypriot banks. Cypriot Finance Minister Michalis Sarris was in Moscow on Wednesday to negotiate an easing of the repayment terms for a €2.5 billion Russian loan granted in 2011 and will no doubt be asking for more cash. Sarris said after he met with the Russian finance minister that nothing had been forthcoming and there was nothing tangible, but talks would be on-going.
Another option is to nationalise the penson funds of various public and semi-public institutions, but Dow Jones says the troika has rejected this. Reducing the financial sector through mergers in order to reduce the cash needed to bail out the banks (some €10 billion euros) is also suggested. On this point, the European Commission and the Eurogroup, along with Cyprus itself, all agree that the country's financial industry is far too big in relation to the wealth of the country. German Chancellor Angela Merkel said on Wednesday that the bank industry should provide a solution for making the debt sustainable.
Cyprus' banks remain shut. Cypriot banks have been closed since the weekend and may not open again on Thursday as planned because a run on the banks is feared, said the president of the Cypriot Central Bank on Tuesday. Ordinary people have welcomed the Cypriot parliament's rejection of the plan to tax private savings of between €20,000 and €100,000 by 6.75% and levy 9.9% on savings above €100,000, a change to what was agreed in the early hours of Saturday (see EUROPE 10808) which would have taxed people even with less than €20,000 in savings. The agreement on Saturday was unanimous, but everyone says now that it wasn't their idea. On Wednesday, the European Commission said that it had called for savings of less than €100,000 to be exempt from the tax, but the Cypriot government wasn't interested in the Commission's idea.
Along with the possible run on banks, there is also a fear that the ECB may decide to pull the plug on further lending to Cypriot banks. The ECB emergency cash is only provided to solvent banks, but Cypriot banks are not solvent unless they receive rapid recapitalisation, warned ECB Executive Council member Jörg Asmussen on Wednesday. The same threat was made earlier in the day by Austrian Finance Minister Maria Fekter. Bloomberg says the ECB is awaiting clarificaiton about the aid programme before making any decision.
The Cypriot president, Nicos Anastasiades, held a cabinet meeting on Wednesday evening and a special Eurogroup meeting may be held as soon as a satisfactory alternative proposal has been formulated. (EL/transl.fl)