Brussels, 02/04/2013 (Agence Europe) - On Tuesday 2 April, Cypriot Finance Minister Michalis Sarris handed in his resignation as Cyprus announced that agreement had been reached with the troika of lenders (the European Commission, the European Central Bank and the International Monetary Fund) on the terms of the Memorandum of Understanding (MoU) laying down the conditions for a financial assistance programme. The European Commission had not issued any statement at the time we went to press on Tuesday afternoon, but confirmation of the news was expected to be imminent.
On Tuesday morning, President of Cyprus Nicos Anastasiades said that an investigatory committee had been set up to decide who exactly was responsible, in the criminal and administrative courts, for getting Cyprus into the current mess. The committee will investigate the period during which Sarris chaired the country's second biggest bank, Laiki, when the ECB's emergency liquidity aid (ELA) totalled €9 billion. Under agreement with the eurozone, Laiki is being wound up. Cyprus Labour Minister Haris Georgiades will take over from Sarris and be signed in on Wednesday 3 April.
The aim of the investigation is to find out whether or not there was insider dealing during the aid negotiations with the Eurogroup giving people warning in advance of the imminent raid on savings. Rumours in the Cypriot press suggest that big sums of money were sent overseas by a company headed by Anastasiades' son-in-law. Anastasiades has brushed aside the allegations and promised to voluntarily present himself to the investigation.
The Cypriot MoU says that 2.5% interest will be charged on loans from the eurozone with twelve-year repayment schedules that start in ten years' time. As announced by the head of the European Stability Mechanism (ESM), Klaus Regling, the first disbursements will be made next month (see EUROPE 10814). The Cypriot government announced that it has been given until 2018 to achieve the budget targets laid down in the MoU, which stipulates a €351 million cut in public spending (2.1% of GDP) and an increase in revenue, explains the Phileleftheros newspaper
Casinos. In a bid to stimulate the economy that is now subject to an austerity programme, the Cypriot president has published a twelve-point growth programme that will lift the current ban on casinos.
Last week, the Cypriot authorities agreed with the Eurogroup to immediately wind up Laiki and for savings of up to €100,000, guaranteed under EU guaranteed savings rules, to be taken over by Bank of Cyprus (BoC). Some savings of above €100,000 held in BoC will be absorbed by the bank with savers getting shares in return for their cash. The Cypriot Central Bank says that 37.5% of savings of above €100,000 will be absorbed in this way, 22.5% will be temporarily frozen and possibly absorbed, if needed. Of the remaining 40%, 10% will be unfrozen.
The president of Cyprus Central Bank, Panicos Demetriades, said in an interview with the Financial Times that a run on the banks was not to be feared and the restrictions on movement of capital would gradually be relaxed. A law signed by the finance minister (Sarris) on Tuesday - that applies for two days - raises the cap on bank transactions (beyond which approval of the Cypriot Central Bank is required) from €5,000 to €25,000. Payments by cheque are now allowed for up to a total of €9,000 a month. Rumours suggest that it might be a month before all the capital movement restrictions are lifted.
The Bank of England announced on Tuesday that deposits in Laiki branches in the United Kingdom will be transferred to branches of BoC in England and savings of up to £85,000 (around €100,000) will be guaranteed by the British government.
European liberals want blood. The head of the ALDE Group at the European Parliament, Guy Verhofstadt of Belgium, and French MEP Sylvie Goulard, want the European Central Bank to explain itself, along with the European Banking Authority (EBA) and the European Systemic Risk Committee (CERS): “It is hard to understand the current Cypriot banking situation and its extremely high need for liquidity, given that in 2011 Cypriot banks passed the EU-wide stress test and that in October 2012 the EBA reported in its EU capital exercise a capital hole of €1.8 billion at the Bank of Cyprus and Laiki. We cannot accept as an argument that the EBA did not bear the primary responsibility. Surely the EBA, through its Chairperson, has a duty to inform. He must appear before the Parliament to explain why an intervention was not taken beforehand.” The troika, was described in January by the head of the European parliament, Martin Schulz, as a “dark power.” and Verhofstadt and Goulard add that “it is time for the troika, which is in effect the operative arm of the EU dealing with the struggling member states, to report directly to the EP. The confusion and mismatching messages about the crisis show a great lack of democratic accountability.” In response to questions about this, the ECB says that ECB officials already report to the European Parliament questions related to the troika's work in the regular hearings of ECB president Mario Draghi. (EL/transl.fl)