A Long Weekend In Cyprus

ayia_napa17:50 Thursday 21st March 2013
Drive BBC Radio Cambridgeshire

[C]HRIS MANN: It’s deadline day in Cyprus again. The Cypriot President said a decision must be made on a Plan B to rescue the country’s indebted banks. On Tuesday the Parliament overwhelmingly rejected a bailout which involved taxing people’s savings. Banks there have been shut all week to prevent mass withdrawals, and are now to stay closed until next Tuesday. The European Central Bank has warned it may stop emergency funding on Monday. Our Europe Correspondent Duncan Crawford is in Brussels with more.
DUNCAN CRAWFORD: Well the European Central Bank clearly racheting up the pressure on Cypriots’ leaders to try and sort out a deal which will allow it to move past this current terrible financial plight it’s in. Cyprus’ leaders know they need to find €17 billion to refinance their banks and the Government. That’s the equivalent of a whole year of Cyprus’ economic output. They were offered €10 billion in emergency loans in exchange for putting in place a tax on deposits to raise the rest. We saw the protests that that led to. And they’re trying to find a Plan B. The question is what that Plan B is going to involve. Some details have come out. A solidarity fund is being talked about. That would take donations from Cypriots, from businessmen, from foreign investors. There’s talk of the Cypriot Orthodox Church giving cash. There’s a possibility they’ll nationalise some pension funds. And of course they’re also trying to get help from Russia, or more financial aid from Russia. But time is running out, and the European Central Bank today saying that Cypriot politicians have until Monday to get a deal in place, or funds will be cut off At the moment the European Central Bank is basically keeping two Cypriot banks afloat. So the clock is ticking.
CHRIS MANN: Yes, and the country basically surviving on that lifeline from the European Central Bank, so heaven only knows what will happen if there isn’t a deal that can be done. And the banks, do I understand it, are to stay closed now until next Tuesday in Cyprus?
DUNCAN CRAWFORD: Yes, you’re entirely right. So banks staying closed until next Tuesday. The stock market to remain suspended as well. And you hear stories coming out of Cyprus, people extremely concerned. Petrol stations and restaurants, many of them now saying they want cash. More and more not accepting credit cards. Businesses struggling to keep their cash flow healthy enough to keep businesses running as well. So a very difficult situation for the people and businesses there.
CHRIS MANN: Isn’t it a huge embarrassment for everybody there in Brussels Duncan, that it’s Russia from outside the EU that appears to be doing the most to help Cyprus?
DUNCAN CRAWFORD: I think it would depend on what side of the argument you stand on. Certainly here in Brussels EU leaders would argue they have done a lot to try and help Cyprus. They’ve offered €10 billion in emergency loans. The IMF is involved in this deal. The European Central Bank as well. And their concern is they can’t keep giving more and more money to Cyprus, because its debt levels will just be unsustainable. Their debts will be so high that they won’t be able to bring them down in the future, in any near term time frame. So that’s why they put forward a €10 billion deal, saying that Cyprus needed to fund the rest of the money it needs, which of course there is the tax on deposits, which was discussed. Almost 10% over €100,000 and 6.75% for deposits under €100,000, which EU leaders here argue it wasn’t them that put forward those figures. They wanted to see over 15% levy on people who had over €100,000 in their account, whereas the Cypriots, who put forward the other charges.
CHRIS MANN: Well Duncan let’s put this in proportion. Cyprus, basically Cambridgeshire’s economy probably rivals it. And yet this could be the straw that breaks the camel’s back, because it’s the domino effect, isn’t it, of what could happen from here.
DUNCAN CRAWFORD: At the moment the financial markets aren’t reacting too aggressively, too panicky I should say. But if the situation came to it, on Monday, where European Central Bank funding was withdrawn, then almost certainly the two main banks in Cyprus wouldn’t be able to fund themselves, which would mean people could lose their deposits. And there could be all sorts of chain reactions which could happen, which no-one really knows what would happen. But many talk about the possibility of Cyprus being forced to leave the Eurozone. And if that happens, there could be a lot of negative effects for other European economies as well.