21 March 2013: EU threatens Cyprus with cutoff of funds

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Cyprus is considering to nationalize pension funds which hold between 2 and 3 million euros and issuing an emergency bond linked to future natural gas revenues as talks continue in Nicosia, Brussels and Moscow. The Government has decided to keep banks closed till Tuesday 26th next week in an effort to try to avoid a customer’s run on the bank when they open. The banks have been closed since Friday last week. The Cypriot Parliament on Tuesday rejected EU’s term and conditions for a Euro 10 Billion bailout and turned to Russia for aid. This comes amid threats for a complete cutoff in funds to Cyprus.

Finance Minister Michael Sarris has extended his stay in Moscow. Russian officials said that Sarris has asked for a further 5 billion euros on top of a five year extension and lower interest on an existing 2,5-billion euro loan given in 2011. Russian clients hold approximate 30 Billion Euros in Cypriot banks, and would be especially hard hit by the proposed bailout which threaten to confiscate 9,9% or more on all bank accounts with a balance above 100 000 Euros. That equals a confiscation of 3 – 5 B euros from Russian citizens’ dependent of which percentage is finally chosen. EU has indicated an even higher levy than 9,9% on deposits above 100.000.

Russian Prime Minister Dmitry Medvedev will today meet with a delegation from the EU Commission in Moscow. Both President Vladimir Putin and Medvedev have expressed outrage with the way both EU and the Cyprus government have handled the bailout question. Russia was in spite of promises not consulted in advance. Putin called the bailout package “unfair, unprofessional and with unprecedented consequences”.

In a statement yesterday Medvedev said that Euro zone ministers had behaved “like a bull in a China shop” and likened the proposals to Soviet-era confiscations. This made little impression on EU-leaders who continued to stress that the bailout was fair and urgent action needed to save the overblown banking system in Cyprus from collapsing. The European Central Bank (ECB) warned simultaneously that Cyprus was running out of time. ECB would pull the plug on Cyprus unless the tiny country of 1 million people, quickly accepts a bailout.

That made little impression on Cypriots who continue to balk at EUs demands for a confiscation of 5,8 billion Euros from private accounts. This has so far been a taboo in Europe’s handling of the debt crisis. Private accounts have been regarded sacrosanct and not touched. The reason why EU in relation to Cyprus has chosen to break with this sacred principle, is probably due to the fact that a big number of Russian accounts are involved. Facing an election in September the German Chancellor, Angela Merkel, is afraid of being accused for bailing out rich Russian with for what might be claimed as German taxpayer’s money.

The first turbulence in global markets after the Cyprus crisis is slowly fading for now. Asian markets rose on FED chief, Ben Bernanke’s statement yesterday painting a more optimistic picture of the employment situation without indicating an end to monetary easing. The Euro has stabilized from steep falls earlier in the week. The handling of the Cyprus crisis has once again put the question of the survival of the common currency on the agenda and raised focus on negative growth, political instability and the mass unemployment inside the Euro zone.

On that basis global observers are asking whether the EU-leaders complete have miscalculated markets reaction in their handling of the Cyprus crisis. It is announced that the Cypriot President, Nikos Anastasiades, today is going to present his Plan B for how possibly get out of the crisis. 

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