ECB issues ultimatum to Cyprus

Back to the drawing board for Cyprus
Back to the drawing board for Cyprus


    Back to the drawing board for Cyprus


Back to the drawing board for Cyprus 03:59

Story highlights

  • n a short statement the ECB said its 23-person governing council had agreed to maintain emergency liquidity
  • The ultimatum came as EU leaders maintained pressure on Nicosia to come up with a new plan
  • The latest plan calls for a 5 per cent levy on deposits above €100,000 to raise about €3bn

The European Central Bank raised the stakes in the Cyprus crisis on Thursday, telling Nicosia it had until Monday to agree a bailout with the EU and International Monetary Fund or it would cut off emergency liquidity provision to the country's banks.

The hardline stance from the ECB sets a clear deadline for Cyprus to agree to a plan after its parliament rejected a bailout negotiated at the weekend that would have taxed the deposits of account holders in the country's banks.

The ultimatum came as EU leaders maintained pressure on Nicosia to come up with a new plan on its own and Russian prime minister Dmitry Medvedev told a visiting European Commission delegation that a solution had to include Russian participation.

"It is now up to the Cypriot authorities to come up with proposals," Jeroen Dijsselbloem, chair of the committee of 17 eurozone finance ministers who negotiated the bailout, told the European Parliament on Thursday morning.

In a short statement the ECB said its 23-person governing council had agreed to maintain emergency liquidity provision to Cyprus's banks until Monday. "Thereafter, Emergency Liquidity Assistance could only be considered if an EU-IMF programme is in place that would ensure the solvency of the concerned banks," it said.

Cyprus looks to Russia for aid
Cyprus looks to Russia for aid


    Cyprus looks to Russia for aid


Cyprus looks to Russia for aid 02:54
Cyprus in financial crisis
Cyprus in financial crisis


    Cyprus in financial crisis


Cyprus in financial crisis 03:24
Why Russia is upset with Cyprus tax
Why Russia is upset with Cyprus tax


    Why Russia is upset with Cyprus tax


Why Russia is upset with Cyprus tax 03:21

The country's two biggest banks, Bank of Cyprus and Laiki, are believed to be reliant on Emergency Liquidity Assistance provided by the Central Bank of Cyprus. The ECB's governing council can terminate ELA if it believes the banks receiving it are no longer solvent.

The move, however, raises the prospect of the ECB having to make good on its ultimatum on Monday, which could leave the banks unable to honour their obligations. Some analysts have speculated that the collapse of the banks could trigger a series of events that lead to Cyprus leaving the euro, with unpredictable consequences for the rest of the eurozone.

Speaking in Brussels, Mr Dijsselbloem said Cyprus represented a systemic threat to the eurozone -- further underscoring the danger of an escalation. In a hearing before the European Parliament, he defended the ECB's decision, saying the central bank was only acting within its mandate not to fund insolvent financial institutions.

"I don't think the ECB is using threats," Mr Dijsselbloem said. "The ELA facility can only be made available to banks that are [solvent]. There has to be at least the prospect in the near future of a programme of recapitalisation, of bringing these banks within a safe haven again."

Cyprus's political leaders on Thursday discussed a new proposal for a modified levy on bank deposits and the establishment of a "national salvation" fund to cover the country's contribution to a €10bn bailout agreed with international lenders.

If approved by the "troika" -- officials from the EU, European Central Bank and International Monetary Fund -- the plan would be put to a vote in parliament later in the day.

"We have to rescue the country, regardless of the sacrifices needed," a government spokesman said. But after Tuesday's overwhelming rejection by lawmakers of an earlier version of the levy, the government's chances of scraping a parliamentary majority looked slim.

The latest plan calls for a 5 per cent levy on deposits above €100,000 to raise about €3bn. Smaller accountholders would not be affected.

The remainder of Cyprus's €5.8bn share of the bailout would come from the new fund, which would include some reserves of state pension funds, state property holdings and the proceeds of a bond backed by future revenues from exploiting offshore gas deposits.

Mr Dijsselbloem said that although he did not know whether Cypriot officials had made progress in Moscow where talks were ongoing, Russian officials had previously indicated they were only willing to restructure an outstanding €2.5bn loan to Cyprus to lower the interest rate and extend its repayment schedule. He said they were not willing to invest in Cypriot banks or lend the country additional money.

"If the Russians want to say they could lend more, that wouldn't help," Mr Dijsselbloem said. "Building up debt in Cyprus doesn't help them in the future."

Speaking in Moscow following a meeting with his Russian counterparts including President Vladimir Putin, José Manuel Barroso, the European Commission president, attempted to counter Russian criticism that the Kremlin should have been consulted on the deal, saying the levy on large depositors was the result of all-night negotiations where nobody knew the result beforehand.

"Russia was not informed also because the governments of Europe were not informed -- let's be completely open and honest about that issue," Mr Barroso said. "There was not a pre-decision before the eurogroup meeting . . . of course, here in Russia today, I will be, of course, as always, open to listen to the concerns of our Russian partners."

Cypriot finance minister Michael Sarris was meeting for a second day on Thursday with his counterpart Russian finance minister Anton Silouanov to discuss rescheduling the $2.5bn Russian loan which is due in 2016. He said they were also discussing co-operation in the banking and energy sectors, adding that any deal to solve the island's debt crisis should also be in Russia's interests.

"There's a lot of teams now working on a number of issues. Banks, natural gas, are opportunities [on which] we can base some co-operation and some support from Russia," Mr Sarris told reporters in Moscow on Thursday.

In an interview with Russian business daily Vedomosti, Cypriot central bank governor Panicos Demetriades said the amount of Russian deposits on Cyprus was lower than previously thought, and put the figure at between €5bn and €10bn "depending on how you count it."

It is understood that one option suggested by Mr Sarris was an additional loan of €5bn which would be collateralised by assets in Cyprus. Vedomosti quoted unnamed Russian officials as saying they saw no immediate value in any of the investments in Cyprus, but that they were continuing the talks.

      Europe's financial crisis

    • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

      Schaeuble: 'Don't see' bailouts

      German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
    • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

      Spain keeps partying

      Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
    • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

      OECD: Slow recovery for Europe

      The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
    • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

      Europe's new threat: Slow decay

      The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
    • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

      Spain aims for big tourist summer

      Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
    • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

      May Day protesters flood Europe

      As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
    • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

      Croatia PM: We need Italy to recover

      As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
    • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

      Spain's unemployment hits record

      Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
    • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

      Welcome to Madrid: City of protests

      Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.