European Central Bank sets Cyprus deadline

The European Central Bank (ECB) has warned that it will withdraw emergency aid from Cyprus if the debt-hit country fails to come up with a bailout plan by Monday.

“The governing council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, March 25.

“Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks,” the ECB said in a short statement.

The ECB is keeping the Cypriot banks alive by allowing them to draw on emergency support through the local central bank.

Eurogroup head Jeroen Dijsselbloem on Thursday said that the Cyprus debt crisis poses a “systemic risk” that threatens to ricochet right through the eurozone.

Taxing deposits

Cyprus should come up with a “more fair balance” as it reworks a controversial bailout-dictated depositor tax, Dijsselbloem told EU parliamentarians in Brussels.

“The Eurogroup felt it was very important that there should be a fair burden-sharing. We were of the opinion that the burden on large deposits should be larger than on small deposits. We’re still of that opinion,” Dijsselbloem added. 

The Dutch finance minister also warned that Cyprus borrowing more from Russia – on top of changes to their existing loans – is not an attractive solution, noting that “building up the debts in Cyprus doesn’t help them to work towards a new future”.

Dijsselbloem conceded that there should have been “more time, more wording” spent on underlining the difference between the tax and a European deposit guarantee.

He said he takes “responsibility” for the Cyprus bailout decisions, but argued that the “damage has been very, very little in my view” given the calm on financial markets.

Dijsselbloem made the comment during a European Parliament hearing in which he said that the Cypriot banking model needs a total overhaul.

Drawing up ‘Plan B’

Cyprus politicians on Thursday agreed to set up an investment fund as part of a “Plan B” to secure a bailout deal with eurozone lenders, while ruling out a tax on bank deposits that sank an earlier deal.

“Following a proposal by (President Nicos Anastasiades) there was a consensus reached and a unanimous decision was taken for the setting up of an Investment Solidarity Fund,” government spokesman Christos Stylianides said in a statement.

Other political leaders emerging from a crisis meeting with Anastasiades to hammer out a revised bailout plan said the subject of a “haircut” on bank deposits had been ruled out completely.

The authorities spent Wednesday in frantic talks, including with political party leaders and central bank officials, to hammer out the alternative plan, which a legislator said was not likely to be finalised before the weekend.

The cabinet went into a crisis session to look at bills designed to limit capital outflows and restructure the troubled banking sector, media reported.