Cyprus molds bitter bailout plan

Lawmakers take up bills meant to meet eurozone terms

An employee of Laiki bank holding  an umbrella is seen behind riot police during a rally outside of the parliament in capital Nicosia, Cyprus, Friday, March 22, 2013. Cypriot authorities were putting the final touches Friday to a plan they hope will convince international lenders to provide the money the country urgently needs to avoid bankruptcy within days. (AP Photo/Petros Karadjias)
An employee of Laiki bank holding an umbrella is seen behind riot police during a rally outside of the parliament in capital Nicosia, Cyprus, Friday, March 22, 2013. Cypriot authorities were putting the final touches Friday to a plan they hope will convince international lenders to provide the money the country urgently needs to avoid bankruptcy within days. (AP Photo/Petros Karadjias)

NICOSIA, Cyprus - Cypriot lawmakers were finalizing Friday a new plan they hope will raise enough money to qualify the country for a bailout package and help it avoid financial ruin next week.

Cyprus’ president, Nicos Anastasiades, will travel to Brussels today to present the plan to the country’s prospective creditors, its fellow eurozone countries and the International Monetary Fund.There has been no indication yet that they will accept it.

The package of nine bills was expected to be voted on in parliament Friday night, three days after lawmakers decisively rejected a plan that would have seized up to 10 percent of people’s bank deposits.

Cyprus has been told to raise $7.5 billion to qualify for $12.9 billion in rescue loans from the eurozone and the IMF.

The country faces a pressing Monday deadline, when the European Central Bank has said it will stop providing emergency funding to the country’s banks if an acceptable plan is not in place. Without the central bank’s support, Cypriot banks would collapse on Tuesday, pushing the country toward bankruptcy and a potential exit from the 17-country union that uses the euro.

But eurozone officials said they had still not seen all the details and would have to discuss whatever final plan Cyprus presents.

Eurozone finance chiefs continue to insist that Cyprus come up with $7.5 billion and that it undertake “substantial changes” to its financial industry burdened by “four big Cypriot banks that are not viable,” Luxembourg Finance Minister Luc Frieden said on German RBB-InfoRadio on Friday.

“I see little wiggle room with some European countries, also financially, to make more concessions toward Cyprus,” he said. “Time isslipping away,” said Frieden. “Banks will open again in Cyprus on Tuesday and a solution is absolutely necessary, because this is not just about Cyprus, it also concerns Germany, Luxembourg and the stability of the eurozone. We need a credible plan.”

Government spokesman Christos Stylianides said there had been “consultations all day” with representatives of the IMF, European Central Bank and European Commission - collectively known as the troika - who monitor and vet adherence to bailout conditions.

Averof Neophytou, the deputy head of the governing DISY party, said “significant progress” had been achieved Friday after hours of haggling over a series of draft laws.

The three main bills include restructuring the country’s second largest and most troubled bank, Laiki, and restricting some financial transactions once banks, which have been closed since last Saturday, reopen Tuesday.

The restructuring of Laiki and the sale of the toxic-asset-laden Greek branches of Cypriot banks are expected to cut the amount the country needs to raise to about$3.9 billion instead of $7.5 billion, Neophytou said.

Another law would set up a “solidarity fund” that will be used to raise money through as yet undetermined contributions and investments.

Despite Tuesday’s rejection of a tax on bank deposits, the idea was back on the table Friday. Neophytou said discussions were continuing on what percentage of accounts above the guaranteed $130,000 limit would be seized, in exchange for bank bonds.

That will happen for deposits in Laiki and could be extended to other banks too, including the country’s largest, the Bank of Cyprus, which also took significant losses on Greek debt.

One lawmaker, who spoke only on condition of anonymity because the talks were ongoing, said the size of the deposit tax would be large enough “so that the numbers add up.”

Laiki bank’s acting chief executive officer, Takis Phidias, condemned the plan. “I’m certain that there will be chaos after these bills are approved.”

Phidias said the initial plan to seize deposits across all Cypriot accounts “would have more evenly shared the burden and certainly, it would have safeguarded bothlarge banks. I’d like to believe that there’s still time to carry out this negotiation.”

The Bank of Cyprus said it backed the idea of confiscating some percentage of all bank deposits over $130,000 because there were no immediate alternatives.

The bank warned Cypriots that “a potential collapse of the banking sector could lead to the total loss of all deposits above $130,000 and the immediate sale of all collateral accompanying nonperforming loans.”

Meanwhile, Cypriot efforts to clinch a contribution from Russia appeared to have failed. Russia is a key player in the crisis, as Russian depositors have parked about $25.8 billion in Cypriot banks.

Cypriot Finance Minister Michael Sarris returned to Cyprus on Friday night after spending three days in Moscow trying to drum up support.

“We will only be ready to discuss various ways of support for that state only after the EU nations and Cyprus work out a final settlement,” Russian Prime Minister Dmitry Medvedev said at a news conference.

Russia’s finance minister, Anton Siluanov, said the Cypriots were seeking investment from Russian companies in a Cypriot state-ownedfirm that will manage revenue from the island’s newfound offshore gas. The Russian investors, however, were not interested.

Cyprus also offered stakes in some of its banks, but there were no takers in Moscow for that, either. Siluanov also said they were not discussing providing a new loan to Cyprus as the European Union has set a debt limit for Cyprus.

Back in Nicosia, worried Laiki employees gathered near the parliament for a second day to protest the bank’s restructuring, which would break the lender in two. One side would take on the soured investments to allow the stronger side to survive. Depositors who have a portion of their money taken by the government would receive an equity stake in the so-called good bank.

“The bank is finished; we’ll lose our jobs and I’m worried about my kids,” Laiki employee Nikos Tsiangos said, standing behind barricades and a cordon of police that blocked the way to parliament. “They’ve brought us to the brink; the Europeans wanted to destroy our economy and they’ve done it.” Information for this article was contributed by Elena Becatoros, Geir Moulson and Nataliya Vasiliyeva of The Associated Press and Tom Stoukas and Ben Sills of Bloomberg News.

Business, Pages 29 on 03/23/2013

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