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Cyprus (5): The Second Bailout Weekend…

This weekend, is another critical one for Cyprus, as the island returns to Eurogroup’s  demand for taxing big savers. The financial and geopolitical “element” in the situation this weekend is that Cyprus is completely alone after losing Moscow’s support:

Cyprus closes in on EU bailout, U-turn on levy – Washington Post

Cyprus is expected to make a dramatic U-turn on Saturday to avert the imminent threat of financial meltdown, having signaled it is willing to tax big savers in its stricken banks to clinch a bailout from the European Union. The island’s partners in the 17-nation euro zone scheduled a meeting for Sunday in Brussels, in a strong sign they believe a solution is near. As hundreds of demonstrators faced off with riot police outside parliament late into Friday night, lawmakers inside voted to nationalize pension funds, pool state assets for a bond issue and peel good assets from bad in stricken banks. Officials said a deal was imminent to raise 5.8 billion euros demanded by the EU in return for a 10 billion euro ($13.00 billion) lifeline, including some kind of levy on bank deposits, which could be voted on as soon as Saturday. Without a deal by Monday, the European Central Bank has threatened to cut off cash for Cypriot banks, spelling certain collapse and possible ejection from the euro.

Cyprus 2nd Critical Weekend 1

More importantly, it is politically the worst case senario for everyone to return to a previous position, that it had previously abandoned:

Cyprus ruling party says solution close on bailout crisis – Globe and Mail

Cyprus moved perilously close to bankruptcy when its parliament threw out the proposed levy on Tuesday, with Cypriots enraged by plans to hit small holdings of ordinary savers as well as large accounts, many held by foreign investors. In the absence of the bank levy, Nicosia turned to Russia, whose citizens have billions of euros at stake in Cyprus’s outsized banking sector. But Finance Minister Michael Sarris returned from Moscow empty-handed. On Friday he said the bank levy was back “on the table”. Party officials told Reuters that discussions were centred on a levy on depositors holding over 100,000 euros, sparing smaller savers. One official said the tax could be limited to big savers at the island’s biggest lender, Bank of Cyprus , at a 20 percent rate.

On the other hand, a serious question about Nicosia’s “Plan B” still remains to be answered:

The bail-out of Cyprus: Cash call | The Economist

THE mood in Cyprus this weekend is both fragile and fractious. Fragile because Cypriots fear that yesterday’s ultimatum from the European Central Bank to agree to a bail-out by Monday has created a serious risk, not only that Laiki Bank (and perhaps Bank of Cyprus) could go bust next week, but also that their country might fall out of the euro. They worry too that the much-hated plan of the Eurogroup (the finance ministers from the euro-zone countries) to tax all bank deposits may yet come back, despite their parliament’s decisive rejection of it on March 19th. But amid the queues in front of ATMs and in the crowds waving Russian flags in front of the parliament, the feeling is also fractious. Most Cypriots believe that this crisis has been thrust on them through no fault of their own. Unlike Greece, the budget deficit is small (indeed, it was in surplus until recently). Unlike Portugal and Italy, growth has mostly been quite robust. So why, many Cypriots wonder, has Europe suddenly decided to punish them? Within the government the hunt is still on for a viable “Plan B” now that the Eurogroup’s plan A has failed. But it is proving elusive. The finance minister, Michalis Sarris, has made little progress in Moscow trying to get a fresh loan. The idea of an emergency rescue fund that might take in property held by the Orthodox church, pension-fund assets and maybe even a contribution from Britain to make up for the non-payment of rent on its sovereign bases, is appealing, but it will be hard to organize in a few days. Splitting Laiki into a good and a bad bank is now likely, but that still may not be enough to allow it to survive. That is why the talk is that there may still have to be some tax imposed on bank deposits over €100,000 ($130,000).

Finally, the serious need for creative negotiation approaches remains, as time sets an important deadline for Cyprus…

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