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Cyprus leader still hopeful of 11th-hour bailout deal

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(Globalpost/GlobalPost)

Cyprus President Nicos Anastasiades said he remained hopeful Saturday even though he had no deal to announce on a bailout to save the island from looming bankruptcy on the eve of crunch talks in Brussels.

Cypriot officials were huddled with EU and IMF representatives throughout the day in a bid to find a way to meet their conditions for unlocking 10 billion euros ($13 billion) in desperately needed emergency loans by a Monday deadline.

The so-called troika of the EU, IMF and European Central Bank is demanding that Cyprus raise 5.8 billion euros in return and shrink its bloated financial sector.

The Cypriot parliament has already approved a painful package of banking reforms and there is reluctant consensus on a raft of other revenue-raising measures to put to the eurozone ministers for approval on Sunday.

A swinging restructuring to the island's second largest lender Laiki (Popular Bank) passed by MPs on Friday will see all deposits over 100,000 euros put into a "bad bank" where they will be tied up for years and may never be recovered in full.

But negotiations remained snagged on troika demands for a substantial levy on deposits in Bank of Cyprus -- the island's largest lender -- amid massive opposition among MPs.

Parliament overwhelmingly rejected on Tuesday a move to tax savings in all the island's banks and the government was battling to come up with a way of satisfying the troika without facing a new defeat by MPs that would deliver a fatal blow to the bailout.

"We are here and we are working vigorously to save the economy," Anastasiades said on Twitter.

"We are making every effort. I hope to have a result soon," he said.

State television said the government was seeking a way to impose the levy on deposits of 100,000 euros and more, which under EU rules enjoy no guarantee, without requiring parliamentary approval.

It said discussions had been held on making the so-called "haircut" a "contribution" made by depositors in return for government bonds.

Cypriot politicians also baulked at the size of the levy being demanded by the troika on big depositors in Bank of Cyprus who include many of the island's major firms.

Privately run Sigma TV reported that the troika was calling for a levy of 20 to 25 percent and would only accept a reduction to 16 percent in return for a levy of four to five percent on deposits in the island's other banks.

But the government remains reluctant to hit depositors in banks with sound loan books for fear of legal action, state television said.

The state CNA news agency quoted a senior official it did not identify as saying the government was not even close to a deal as talks between Anastasiades, troika representatives and party leaders dragged on until nearly midnight (2200 GMT).

The official attributed the deadlock to "the rigid attitude" of the representative of the IMF, whom he said, "every half hour puts forward a new demand".

The president needs to come up with a deal that he can put to eurozone ministers and EU chief in Brussels talks called for 1700 GMT on Sunday.

He has invited party leaders to accompany him in a bid to get the necessary legislation through parliament in which his conservative Disy party hold only 20 of the 56 seats.

EU sources have said if no deal is reached, the 27-nation bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.

Anger mounted among staff in the island's huge banking sector at the concessions already made that will see Laiki's 600 million euro pension fund swallowed up in the "bad bank" that will take over the non-performing loans.

At least 1,000 bank staff marched on parliament as banking union chief Loizos Hadjicostis threatened industrial action when banks reopen.

"If you don't secure our pension fund, we will go on strike from Tuesday," he told the demonstrators to chants of support.

Were a strike call widely respected, it would be a massive blow to an economy already reeling under a bank closure of more than a week that has seen many businesses start refusing all but cash transactions.

Bank employee Anthoulla Tiba hit out at measures she saw as being imposed by Germany, which has repeatedly warned that its patience with Cyprus is running out.

"What Hitler couldn't do with guns it is being done to us now with the economic war," she said.

Laiki economist Yiannis Tirkides said that savings hived off into the bad bank would be "blocked" for years while it absorbs the lender's non-performing loans, which he put at about 30 percent of all Laiki lending.

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http://www.globalpost.com/dispatch/news/afp/130323/cyprus-leader-still-hopeful-11th-hour-bailout-deal