Cyprus debt crisis: Progress hailed in ‘troika’ talks

Finance minister Michalis Sarris said “significant progress” had been made in talks in the capital Nicosia with officials from the “troika” comprising the European Union (EU), European Central Bank (ECB) and International Monetary Fund (IMF).

He confirmed discussions centred on a possible levy of around 25 per cent on holdings of more than ¤100,000 (£85,000) at the Bank of Cyprus, and expressed hope a package could be ready by the end of the day for approval by parliament.

Cyprus faces a deadline tomorrow to clinch a bailout deal with the EU or the European Central Bank has said it will cut off emergency cash to the island’s over-sized and stricken banks, spelling certain collapse and a potential exit from the European single currency.

Cypriot and EU officials said Cypriot president Nicos Anastasiades was expected in Brussels today to meet EU leaders including president of the European Council Herman Van Rompuy and European Commission president Jose Manuel Barroso, as well as the IMF chief, Christine Lagarde, and the head of the ECB, Mario Draghi.

Van Rompuy and Barroso cancelled a planned EU-Japan summit in Tokyo to focus on Cyprus and Eurozone officials said yesterday that the bloc’s 17 finance ministers would meet this afternoon.

“Significant progress has been made in the direction of getting a deal, at least at the troika level,” Sarris said.

He said a number of issues were still outstanding, but that a package could be ready “late this afternoon or early evening” for approval by parliament.

Arriving at the troika talks, Andreas Artemi, chairman of Bank of Cyprus, was asked if a 25 per cent levy was being considered on uninsured deposits. He replied: “I don’t know that yet.”

The Cypriot parliament on Tuesday angrily threw out a proposed levy on bank deposits, designed to raise the ¤5.8 billion the EU wants in return for a ¤10bn bailout.

The tax is unprecedented in Europe’s handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.

The turnaround came after Russia rebuffed Cypriot entreaties to help its banks, since Russian citizens have billions of euros at stake.

Significantly, the latest proposal would spare small depositors, who were outraged by the original plan to hit small and large accounts, many of them held by rich foreigners including those of Russian oligarchs.

Cypriot leaders fear the damage the levy would do to the country’s offshore banking industry. The tottering banks hold ¤68bn in deposits, including ¤38bn in accounts of more than ¤100,000 – enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.

But much of the banks’ capital was wiped out by investments in Greece, the epicentre of the Eurozone debt crisis.

Racing to placate its European partners, politicians voted in a late-night session on Friday to nationalise state pensions and split failing lenders into good and bad banks. They also gave the government powers to impose capital controls on banks, anticipating an outpouring of money from the island when banks are due to reopen on Tuesday after more than a week of lockdown.

The plan to nationalise semi-state pension funds has, however, met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a levy on deposits.

Taking a first step toward financial consolidation, Cyprus arranged on Friday for the takeover of big Greek units of its two biggest banks by a Greek competitor.

Politicians then gave the government the power to split the good and bad assets of the Bank of Cyprus and second the biggest lender Cyprus Popular Bank, also known as Laiki, and to protect deposits of up to ¤100,000.

The pace of the unfolding drama has stunned Cypriots, who have besieged bank cash machines since the levy was first mooted a week ago.