Officials: Cyprus In Danger Of Default

[HuffingtonPost]

               

* Government has difficult task ahead, spokesman says                

* Island nearing Monday deadline to seal EU bailout                

* No agreement among Cypriot leaders on Saturday night                

* Faces banking collapse, possible euro zone exit                

* Cyprus a "casino economy", says French minister                

By Michele Kambas and Karolina Tagaris                

NICOSIA, March 24 (Reuters) - Cypriot President Nicos  Anastasiades, seeking a last-minute reprieve from financial  meltdown at talks in Brussels on Sunday, has a "very difficult  task" ahead of him if he is to save the island's economy, a  government spokesman said.                

With Cyprus facing a Monday deadline to avert a collapse of  its banking system and potential exit from the euro, late night  talks in Nicosia to seal a bailout from the EU and International  Monetary Fund broke up without result.                

Anastasiades then headed to Brussels in a private jet sent  by the European Commission to hold talks with EU, European  Central Bank and IMF leaders ahead of a crunch meeting of euro  zone finance ministers at 6 p.m. (1700 GMT).                

The president and his team have a "very difficult task to  accomplish to save the Cypriot economy and avert a disorderly  default if there is no final agreement on a loan accord," the  spokesman said.                

Underlining the gravity of Cyprus' position, the EU's  economic affairs chief Olli Rehn said there were now "only hard  choices left" for the latest casualty of the euro zone crisis.                

French Finance Minister Pierre Moscovici put it more  bluntly: "To all those who say that we are strangling an entire  people ... Cyprus is a casino economy that was on the brink of  bankruptcy," he told Canal Plus television.                

After negotiations ended in the early hours of Sunday  morning in Nicosia, the government issuing a statement saying  talks were at "a very delicate phase" and deadlines were very  tight.                

The government's tone jarred with earlier expressions of  cautious optimism during days of intense negotiations between  Cypriot leaders and officials from the island's "troika" of  international lenders, the EU, IMF and European Central Bank.                

Cyprus' overgrown banking sector has been crippled by  exposure to crisis-hit Greece, and the EU says the east  Mediterranean island must raise 5.8 billion euros on its own  before it can receive a 10 billion euro bailout.                

Without a deal by the end of Monday, the ECB says it will  cut off emergency funds to Cypriot banks, spelling certain  collapse and potentially pushing the country out of the euro  zone.                

Conservative leader Anastasiades, barely a month in the job  and wrestling with Cyprus' worst crisis since a 1974 invasion by  Turkish forces split the island in two, is expected to meet the   heads of the EU, the European Central Bank and IMF in Brussels.                

Scrambling to find the funds, officials said Cyprus had  conceded to a one-time levy on bank deposits over 100,000 euros,  a dramatic U-turn from five days ago when lawmakers angrily  threw out a similar proposal as "bank robbery".                

A senior Cypriot official said Nicosia had agreed with its  lenders on a 20 percent levy over and above 100,000 euros at the  island's largest lender, Bank of Cyprus, and four  percent on deposits above the same level at other troubled  banks.                                

'ONLY HARD CHOICES LEFT'                

Finance Minister Michael Sarris spoke of "significant  progress" in talks on Saturday, as angry demonstrators outside  the finance ministry chanted "resign, resign!".                

In a stunning vote on Tuesday, Cyprus's 56-seat parliament  rejected a levy on depositors, big and small, and Sarris spent  three fruitless days in Moscow trying to win help from Russia,  whose citizens have billions of euros at stake in Cypriot banks.                

Rebuffed by the Kremlin, Sarris said the levy was back "on  the table".                

On Friday, lawmakers voted in late-night session to  nationalise pension funds and split failing lenders into good  and bad banks - a measure likely to be applied to the  second-biggest lender, the largely state-owned Cyprus Popular  Bank, also known as Laiki.                

Cypriot media reports suggested talks were stuck on a demand  by the IMF that Bank of Cyprus absorb the good assets of Popular  Bank and take on its nine billion euros debt to the central bank  as well.                

The reports said the Cypriot government was resisting.                

A Cypriot plan to tap pension funds had already been  shelved, a senior Cypriot official told Reuters, under  opposition from Germany, which had warned the measure might be  even more painful for ordinary Cypriots than a deposit levy.                

It was also far from certain that a majority of lawmakers  would back a revised levy, or whether the government might even  try to bypass the assembly.                

Ordinary Cypriots have been outraged by the levy and stunned  at the pace of the unfolding drama. They elected Anastasiades in  February on a mandate to secure a bailout and save banks whose  capital was wiped out by investments in Greece, the epicentre of  the euro zone debt crisis.                                

RUN ON BANKS                

For the past week they have been besieging cash machines  ever since bank doors were closed on the orders of the  government to avert a massive capital flight. Anticipating a run  on banks when they reopen on Tuesday, parliament has given the  government powers to impose capital controls.                

On Saturday, 1,500 protesters, many of them bank workers,  marched on the presidency, holding banners that read, "No to the  bankruptcy of Cyprus" and "Hands off workers' welfare funds".                

The levy on bank deposits represents an unprecedented step  in Europe's handling of a debt crisis that has spread from  Greece, to Ireland, Portugal, Spain and Italy.                

Cypriot leaders had initially tried to spread the pain  between big holdings and smaller depositors, fearing the damage  it would inflict on the country as an offshore financial haven  for wealthy foreigners, many of them Russians and Britons.                

The tottering banks hold 68 billion euros in deposits,  including 38 billion in accounts of more than 100,000 euros -  enormous sums for an island of 1.1 million people which could  never sustain such a big financial system on its own.

Via: HuffingtonPost