Cyprus

In a June letter, Anastasiades called Bank of Cyprus his country's "mega-systemic bank".

After the upheaval of March’s prolonged fight over Cyprus’s €10bn bailout, much of the ensuing debate has focused on the island’s largest remaining financial institution, the Bank of Cyprus, which was saved from shuttering but faces an uncertain future.

The bank’s fate was highlighted in a letter from Cyprus’s president to EU leaders in June, where he argued that eurogroup finance ministers had not properly dealt with the “urgent need” to address the “severe liquidity strain” the bailout had placed on the country’s last “mega-systemic bank”.

“I stress the systemic importance of BoC, not only in terms of the banking system but also for the entire economy,” Nicos Anastasiades wrote at the time.

Well, the European Commission’s soon-to-be-released first review of the Cyprus programme, a draft of which was obtained by Brussels Blog and posted here, shows that the fate of the bank is still somewhat unresolved – and that the EU has decided to make Nicosia’s promise to live up to the original bailout terms a primary condition for easing onerous capital controls which still hamper economic activity. Read more >>

Cyprus' Mavroyiannis, right, with EU's Lewandowsky during last year's budget talks

When Andreas Mavroyiannis was appointed the Greek Cypriots’ lead negotiator with the Turkish side of the island this month, many in Brussels took note. Mavroyiannis is not only Cyprus’ former ambassador to the EU, but he served as the island’s EU minister during its eventful EU presidency last year.

Although the Cypriot presidency received mixed reviews, thanks in part to ongoing upheaval back in Nicosia surrounding the country’s then-unfinished bailout, Mavroyiannis was widely viewed as a pro, winning praise in Brussels for his handling of highly-tendentious negotiations over the EU’s €1tn seven-year budget.

So if Mavroyiannis could handle 27 warring EU heads of state, surely his appointment was a sign of new Cypriot president Nicos Anastasiades’ seriousness in tacking the 40-year division of the island, some reasoned. Anastasiades was one of the few Greek Cypriot politicians, after all, who backed the 2004 Annan Plan to reunify the island, and many EU officials have hoped the economic crisis brought on by the €10bn bailout might bring new momentum to finding a solution to the frozen conflict.

Well, not everyone agrees with that assessment – least of all Osman Ertug, the Turkish Cypriot official who will be Mavroyiannis’ chief interlocutor if and when negotiations reconvene. Read more >>

It may seem a moot point now that Cyprus’ financial system has, for all intents and purposes, collapsed in the wake of last month’s €10bn eurozone rescue that forced the island to impose capital controls on any large withdrawals from its banks.

But as part of the bailout deal, Nicosia agreed to allow international inspectors to rummage around its banks to investigate allegations of rampant money laundering that were once a major bone of contention in Berlin. The investigation was completed late last month.

Last week, a damning four-page summary of their findings written by the so-called “troika” of bailout lenders was obtained by Brussels Blog and other news organisations (we’re posting it here for the first time, since we only recently able to return to blogging after a hacker attack). The “confidential” troika summary paints a picture of lax enforcement and repeated breakdowns in anti-money laundering procedures.

This afternoon, the Cypriot central bank fired back, issuing its own two-page synopsis of the two reports – one by Deloitte, the other by Moneyval, the Council of Europe’s anti-money laundering monitoring body – which accused the troika of “drawing inferences where none exists in the original reports.” We’ve posted the Cypriot response hereRead more >>

Rehn: critics of Cyprus bailout are "comparing apples with pears and coming up with oranges."

During a debate in the European Parliament this morning, Olli Rehn, the European Commission’s economic chief, got roughed up by MEPs lambasting the handling of the €10bn Cypriot bailout by the so-called “troika” of international lenders, of which the Commission is a member.

Jean-Paul Gauzés, the French conservative who led the debate for centre-right parties, called it “disastrous”; his centre-left counterpart, Austrian Hannes Swoboda, dubbed it “neo-colonial” and called on Rehn to disband the troika altogether.

In his response, Rehn chose instead to focus on remarks by Philippe Lamberts, a Belgian Green, who questioned why the size of Cyprus’ funding needs had risen by €6bn over the nine days between the first botched bailout agreement and the second, final deal struck the following weekend:

A month before this famous weekend, €17bn was necessary in order to render Cypriot debt sustainable. Now we found at last week it’s €23bn. Just a slight mistake, a comma here or there. Those who carry out the forecasts and estimates for you, are they incompetent…or was it: well, we’ll play around with the figures to make sure reality looks better than it really is?

 Read more >>

Nicos Anastasiades, the Cypriot president, leaving bailout negotiations in March.

Remember when accusations of money laundering appeared to be Cyprus’ biggest problem? It was only a few weeks ago that Nicosia was pressured into agreeing an outside auditor to poke around its banks to ensure they are not havens for questionable Russian deposits.

Given the fact Cyprus’ two main banks have been either shuttered or drastically restructured as part of its €10bn bailout, it may now seem a moot point, but the 34-page draft “memorandum of understanding” between Cyprus and bailout lenders (a copy of which we’ve gotten our hands on and posted here) is holding Nicosia to the promise.

On page 6 of the MoU, Cyprus agrees to go forward with the audit, as well as an “action plan” to make clearer just who is behind the “brass plate” shell companies that offshore entities use to take advantage of the island’s low corporate tax rates: Read more >>

At Friday’s gathering of eurozone finance ministers in Dublin, the so-called eurogroup is expected to give a “political endorsement” of the details of Cyprus’ €10bn bailout programme, according to a senior EU official.

Ahead of that meeting, documents related to that sign-off have begun to leak out, including the always-interesting “debt sustainability analysis” (which Brussels Blog got its hands on and posted here) and an equally intriguing document titled “assessment of the actual or potential financing needs of Cyprus”, which we’ve also posted here.

As our friends and rivals at Reuters first reported, the most unexpected thing in the documents is the revelation that Nicosia will help reduce its debt burden by selling off “the excess amount” of gold reserves held by the Cypriot central bank, which is expected to raise €400m.

But the details of the rest of what will be the “contribution by Cyprus” to the bailout may be more significant. It is spelled out in detail on page four of the second document and makes clear just how damaging the mishandling of the first bailout agreement was.

Originally, Cyprus was to contribute €7bn (€5.8bn from the now-infamous bank levy and the rest from a new withholding tax on investment profits) to the €17bn total cost of the bailout. Just over a week later, the amount Nicosia will contribute almost doubled, to €13bn, and the total price tag had increased to €23bn. Read more >>

Dijsselbloem, centre, at a press conference Monday announcing the €10bn Cyprus bailout.

The joint FT-Reuters interview with Dutch finance minister and eurogroup president Jeroen Dijsselbloem after the all-night talks to secure Cyprus’ €10bn bailout has caused a lot of discussion and debate. Dijsselbloem issued a statement after we published saying Cyprus is “a specific case with exceptional challenges” and that “no models or templates” will be used in the future.

To clarify what Dijsselbloem said, we’ve decided to post a transcript of the portion of the interview dealing with how the eurozone might deal with bank failures in the future in light of the Cyprus example.

The interview we conducted alongside Brussels bureau chief Luke Baker of Reuters lasted about 45 minutes, and the portion on bank resolution lasted for about 10 of those minutes. The interview started out with some Cyprus-specific questions – like how capital controls might work, whether Dijsselbloem had learned any lessons form the Cyprus experience – and then shifted to a discussion about whether north-south relations were hampering EU decision making.

That’s when Baker asked the first question about whether Cyprus set a precedent for future bank rescues:

Q: To what extent does the decision taken last night end up setting a template for bank resolution going forward?

A: What we should try to do and what we’ve done last night is what I call “pushing back the risks”. In times of crisis when a risk certainly turns up in a banking sector or an economy, you really have very little choice: you try to take that risk away, and you take it on the public debt. You say, “Okay, we’ll deal with it, give it to us.”

 Read more >>

The EU's Rehn, left, with Cypriot finance minister Sarris at the outset of Friday night's meeting

With the eurozone’s €10bn Cyprus bailout now laid waste by the country’s parliament, the recriminations are likely to begin almost immediately. In fact, they started even before the vote was held — almost as soon as it was announced early Saturday morning that the programme included a 6.75 per cent levy on bank accounts under €100,000.

Since then, almost all officials involved in the talks have said it wasn’t their decision to seize deposits from small savers.

Wolfgang Schäuble, the German finance minister, was the first out of the gate, telling public broadcaster ARD on Sunday that it wasn’t his idea. “We would obviously have respected the deposit guarantee for accounts up to €100,000,” Schäuble said. “But those who did not want a bail-in were the Cypriot government, also the European Commission and the ECB, they decided on this solution and they now must explain this to the Cypriot people.”

That statement sparked anger over at the ECB, which denied any involvement in levying smaller depositors. “I want to emphasise that it wasn’t the ECB that pushed for this special structure of the contribution which has now been chosen. It was the result of negotiations in Brussels,” Jörg Asmussen, the ECB executive board member who handled the central bank’s negotiations Friday night, said Monday. “We provided technical help with the calculations, as always, but we didn’t insist on this special structure.

This morning, Pierre Moscovici, the French finance minister, added his name to the list, saying he had been in favour of exempting smaller depositors “from the beginning”.

So where does the truth lie? We pieced together the events of Friday night and Saturday morning for Monday’s dead tree edition of the FT, but it appears more forensics might be needed to get this all straight. Having talked to multiple participants, here’s an even more detailed account. Read more >>

International lenders agreed to a €10bn bailout of Cyprus early Saturday morning after 10 hours of fraught negotiations, which included convincing Nicosia to seize €5.8bn from Cypriot bank deposits to help pay for the rescue, a first for any eurozone bailout.

The cash from Cypriot account holders will come in the form of a one-time 9.9 per cent levy on all deposits over €100,000 that will be slashed from their savings before banks reopen Tuesday, a day after a Cypriot holiday. An additional 6.75 levy will be imposed on deposits below that level.

Cypriot finance minister Michalis Sarris said his government had already moved to ensure deposit holders could not make large withdrawals electronically before Tuesday’s open; Jörg Asmussen, a member of the European Central Bank executive board, said a portion of deposits equivalent to the levies would likely be frozen immediately.

“I am not happy with this outcome in the sense that I wish I was not the minister that had to do this,” Mr Sarris said. “But I feel that the responsible course of action of a minister that takes an oath to protect the general welfare of the people and the stability of the system did not leave us with any [other] options.” Read more >>

Nicos Anastadiades, Cyprus' president, talks to reporters in Brussels ahead of the EU summit.

One of the first leaders to arrive at the pre-summit gatherings of centre-right leaders was Nicos Anastadiades. In brief remarks to reporters in English, he said he hoped a Cypriot bailout deal could be reached at a meeting of finance ministers Friday night.

“We’re doing our best to reach a fair solution and agreement,” he said. “I hope everyone is going to be fair.” Read more >>