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Cyprus (6): Unclear Bank Restructuring (Minus) Tourism = Extreme Austerity…

As the government in Cyprus has tried to meet a Monday deadline for averting a catastrophic financial collapse, President Anastasiades is to fly in Brussels today, for having a close round of consultations with EU officials:

Cyprus seeks 11th-hour deal to avert meltdown – Reuters

Cypriot President Nicos Anastasiades flies to Brussels on Sunday to seek an 11th-hour reprieve from financial meltdown, with a bailout from the European Union and the island’s place in Europe’s single currency bloc hanging in the balance. Facing a Monday deadline to avert a collapse of the Cypriot banking system, talks in Nicosia to seal a bailout from the EU and International Monetary Fund broke up late on Saturday without result. ”Negotiations are at a very delicate phase,” the Cypriot government said in a statement. ”The situation is very difficult and the deadlines are very tight,” it said. Anastasiades will arrive in Brussels in the mid-morning to continue the talks, it said. The tone of the statement differed sharply from earlier expressions of cautious optimism during days of intense negotiations between Cypriot leaders and officials from the island’s “troika” of lenders, the EU, IMF and European Central Bank. Its outsized banking sector crippled by exposure to crisis-hit Greece, the EU says the east Mediterranean island must raise 5.8 billion euros ($7.5 billion) on its own before it can receive a 10 billion euro bailout. Without a deal on Monday, the ECB says it will sever emergency funds to Cypriot banks, spelling certain collapse and potentially pushing the country out of the euro zone.

Cyprus Bailout 6

On the other hand, angry bank employees have protested in the streets of Nicosia, as serious questions remain to be answered about the Cypriot government’s failed attempt to sell the Laiki (Popular) Bank to Russia. It is for certain that the restructuring plan based on the ECB’s instructions is to cause serious problems in the banking sector in Cyprus and also bring more uncertainty about the future:

Cyprus Continues Frantic Negotiations – Wall Street Journal

While angry bank employees protested in the streets of Nicosia against plans for a radical restructuring of the country’s second-biggest bank, talks Saturday continued to center on the fate of another bank: its biggest lender, Bank of Cyprus, Cypriot and European officials with knowledge of the talks said. Cyprus’s government has been scrambling to raise the €5.8 billion ($7.5 billion) that it needs to prop up its banks and qualify for a €10 billion bailout from the euro zone and the International Monetary Fund. A deal on Cyprus’s bailout talks must be reached by Sunday evening when euro-zone finance ministers will meet in Brussels, European Union economics chief Olli Rehn said in a statement Saturday. The finance ministers are scheduled to meet at 5 p.m. GMT Sunday. ”Intensive work and contacts will continue in the coming hours,” Mr. Rehn said in his statement, which came as experts from the troika of the European Commission, the ECB and the IMF in Nicosia were in on-and-off talks with Cypriot officials trying to broker an agreement that would seal the €10 billion aid package.

On the other hand, remains unclear which will be the final percentage levy to be imposed on bank accounts:

Cyprus, EU/IMF Lenders Agree To Bank Tax On Large Deposits: Cypriot Official – Huffington Post

Cyprus has agreed with EU/IMF lenders a 20-percent levy on deposits over 100,000 euros ($130,000) at leading lender Bank of Cyprus and a 4-percent levy on deposits of the same amount at other lenders, a senior Cypriot official said on Saturday. The official, who spoke on condition of anonymity, said a Cypriot plan to tap nationalised pension funds, opposed by Germany, would not be part of a plan to raise billions of euros in return for a bailout from the European Union.

More importantly, if we accept that the financial services sector is permamently destroyed in Cyprus then, the island’s economic development is centrally dependant to the tourism sector. But also the Cypriot tourism industry is not seperated by the general economic life and relevant services:

Cyprus for Easter? Just pack extra cash – CNN International

The financial uncertainty in Cyprus is generating images of long lines at ATM machines and anti-European Union protests. It’s a far cry from the promotional images of azure waters and happy holidaymakers used to attract tourists. As debt-laden Cyprus labors to meet requirements for a 10 billion euro ($13B) rescue package, a downturn in tourism is probably the last thing it needs. Greek tourism took a hit during last year’s political uncertainty there — and the U.S. State Department website still carries a warning for U.S. citizens visiting Greece to avoid demonstrations. In a December report, Cyprus’ central bank attributed a 4.1% increase in tourist arrivals in the first 10 months of 2012, in part to “the negative geopolitical conditions in competitor Mediterranean countries.” Protests in Cyprus have so far not resulted in violence, so, in the build up to the vacation season in Europe, how will its tourism sector fare?  Orestis Rossides, the UK director of the Cyprus Tourism Organization, said tourism accounted for roughly 12% of Cyprus’ GDP, with Britons making up about 40% of overseas visitors. Rossides pointed out that Cyprus held the EU presidency in the second part of 2012 and had a “European tourism infrastructure.” He said ATM machines at Larnaca and Paphos international airports — and all tourist resorts — were working normally.

Finally, it is certain that Nicosia is in great need for strategic planning focused on economic development, energy sector development and a strategic re-assessment of its foreign policy goals not only in the EU, but also out of the EU and Euro zone structures. It is clear that Cyprus has a major geopolitical importance in the S/E Mediterranean.

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