March 2013

Capital controls in Cyprus will intensify the slump while severely damaging the credibility of the euro. The idea that the single currency would rival the US dollar as a secure store of wealth has taken a pasting as a result of the disastrous handling of Cyprus…



Powered by Guardian.co.ukThis article titled “Demolishing some myths about the single currency” was written by Larry Elliott, for guardian.co.uk on Wednesday 27th March 2013 22.29 UTC

The introduction of capital controls in Cyprus is a textbook example of shutting the stable door after the horse has bolted. Rich Russians and wealthy Cypriots knew the crisis was coming and have had the best part of a fortnight to spirit their money out of the country since it broke, even assuming they did not do so beforehand. The restrictions will intensify the slump Cyprus faces while not removing the risk of bank runs when branches finally open for businesson Thursday. What’s more, the controls severely damage the credibility of the euro.

That’s not to say the controls are unnecessary. Even with the severe restrictions announced in place, there is a possibility of bank runs. Without them, bank runs would be a certainty. Modern banking is essentially based on a sleight of hand under which banks have readily available funds that are only a fraction of their total deposits. If all the customers demand their money at once, as would be the case in Cyprus without controls, the banks go under.

The government in Nicosia insists capital controls will be removed within a week, but that looks as heroic an assumption as the idea that the economy will shrink by just 3.5% this year, the current EU forecast. Iceland introduced capital controls in 2008 and still has them in place. There will no doubt be pressure from Brussels on Cyprus to lift the controls as quickly as possible, but most analysts expect them to be in place for a minimum of six months.

As far as the real economy is concerned, Latvia – which had pegged its currency to the euro – suffered an 18% contraction of its economy following a banking collapse. And bank deposits were just 100% of GDP in Latvia; in Cyprus they were 800% of GDP before the crisis. To sum up, Cyprus is going to have a collapsing economy buttressed by capital controls, but unlike Iceland will not have the option of devaluation to make itself more competitive. Speculation that it will become the first country to leave the euro will not go away. Indeed, it will intensify the longer the capital controls are in place.

There are, of course, wider implications for Europe despite attempts over the last week to say that Cyprus is a special case. When the euro was created just over a decade ago it was supposed to embody certain principles. One of those principles was that a euro would be a euro anywhere inside the single currency zone. That has now been violated; a euro in Nicosia is not worth the same as a euro in Berlin.

A second trait of the single currency was that it was supposed to be a secure store of wealth. International investors would have confidence in it and it would rival the dollar as a global reserve currency. That idea has also taken a pasting as a result of the disastrous handling of Cyprus; the decision to make deposit holders pay a share of the bailout has been accompanied by a fall in the value of the euro against the dollar. That’s hardly surprising; savings in US banks are perceived as rock solid whereas those in eurozone banks are not.

A third core belief was that the euro would lead to economic convergence, with the weaker and poorer countries raising their performance to the level of the rich nations at the monetary union’s core. This has looked increasingly absurd against a backdrop of bailouts for Greece, Ireland and Portugal, and the chronic lack of competitiveness displayed by Italy, Spain and – more recently – France.

So Cyprus has put two myths to bed. One is the myth of convergence; the other is that the debt crisis is over. A new chapter has opened, that’s all.

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USA 

Banks in Cyprus opened their doors again. The ECB says Cyprus deposits fell in February. Stock market in Cyprus abandons plans to reopen today. Withdrawals limited to 300 euro per day and no more than 1000 euro to be taken out of the country…



Powered by Guardian.co.ukThis article titled “Cyprus crisis: banks reopen after tough capital controls agreed – live” was written by Graeme Wearden, for guardian.co.uk on Thursday 28th March 2013 13.28 UTC

1.28pm GMT

From Nicosia, Associated Press reports that Cypriots formed ‘large but orderly lines’ to get into banks which have been closed since Saturday 16th March.

People filed calmly into banks across the country once they had opened, and no crowd issues were reported….

Although people were calm, there was also concern that the restrictions on withdrawals (people can only get €300 per day) would be disruptive:

In Nicosia, one 70 year-old pensioner who only gave his name as Ioannis arrived at the bank some two hours ahead of the scheduled opening time.

“I had to come this early, I came from my village 20 kilometers away, what do they want me to do, keep coming and going?” he said

1.14pm GMT

Here’s a gallery of photos from Cyprus so far today: Cyprus banks re-open – in pictures

1.04pm GMT

Passengers at Larnaca airport are warned that they cannot take more than €1,000 out of Cyprus, under the new rules on Capital Controls announced last last night (see details here).

1.00pm GMT

There was quite a queue outside this branch of the COOP Bank in Nicosia today.

Worth noting that not everyone has turned up at the bank to access their savings – some have said they were actually paying money or cheques in.

12.52pm GMT

Relive the crisis

The eurozone has now been locked in a crisis for three and a half years, since Greece first admitted that there was a black hole in its accounts.

Since then we’ve seen five rescue packages (Greece, Ireland, Portugal, Spain’s banking sector, and finally Cyprus), two unelected prime ministers (in Greece and Italy),widespread protests, lengthening jobless totals and an ongoing recession.

You can track it all in our interactive timeline:

12.41pm GMT

Here’s video footage of the scenes outside Cypriot banks today:

12.39pm GMT

Cyprus’s president thanks people for showing calm

The president of Cyprus has thanked the Cypriot people for the “maturity and collectedness” shown today as the country’s banks reopened.

12.32pm GMT

Channel 4′s Faisal Islam spies 10 private jets at the runway at Larnaca Airport, in Cyprus, up from just one ten days ago before wealthy depositors learned that they would be taxed under the Cypriot bailout plan.

12.18pm GMT

Eurozone deposits fastest to leave Cyprus in February

Further evidence that bank accounts started emptying before the Cypriot bailout…

From Reuters:

Savers from other euro zone countries withdrew 18% of the cash they held in Cyprus in February, amid fears the struggling island would impose a tax on bank deposits.

Figures from the Central Bank of Cyprus published on Thursday show deposits from other euro zone states fell €860m to €3.9bn making them the fastest category to leave the stricken country.

I mentioned earlier that total deposits in Cyprus’s outsized banking sector fell by over 2% in February. So it appears that foreign savers, not ordinary Cypriots, were the primary cause.

This eurozone data obviously excludes any movement of deposits to Russia.

11.45am GMT

Latest photos from Cyprus:

This photo shows a Laiki Bank manager tries to calm depositors waiting for the opening of the bank’s branch in Nicosia.

And here’s a man leaving a Bank of Cyprus branch in the Cypriot capital, Nicosia.

11.36am GMT

One of our readers in Nicosia has very kindly provided this report of the situation an hour ago at a local branch:

There was a queue of about 12 outside the large Bank of Cyprus Branch on Strovolos Avenue. in Nicosia.

I do not know how many were inside, but the banking hall would accommodate 30 or more. All was calm and orderly. No police or security staff visible.

We have used internet banking to transfer a very few hundred Euro from a BoC Instant Access account to a BoC current account. The transaction was accepted, but is marked as awaiting confirmation.

He also points out that Cyprus will not be marking Good Friday with a bank holiday — the Greek Orthodox Easter is some weeks away.

Monday is a bank holiday – for Cyprus Independence Day.

11.04am GMT

Natalie Powell of @featurestory reports that many Cypriots say they have no intention of pulling all their savings out of the bank. In fact, they plan to leave it there to support Cyprus.

She reports:

A lot of people are saying to me that they are not intending on taking all of their savings out of the bank, or even trying to….

The country needs money, and they will keep that money in the banks and support them.

You can listen to her latest audio clip from Cyprus here.

Updated at 11.05am GMT

10.49am GMT

Good news. The three branches which didn’t manage to open in time for 10am GMT (see 10.26am) are now all dealing with customers.

It’s a good effort by staff after the 12 day bank holiday; many don’t know how much longer they’ll have a job.

10.36am GMT

Helena Smith: Pragmatism and preaching at the Bank of Cyprus

Four people at a time being allowed in at the Bank of Cyprus branch on Evrou Avenue.

Helena Smith is there, and reports a sense of pragmatism, not panic:

“I want to cash my salary,” says Christina Andreou wielding a cheque for €1300.

“There’s no point being anything but patient. Fighting is going to get us nowhere,” says Dinos Volides who turned up at bank with a cane. “Everyone in the bank is trying to be as helpful as possible.”

The only commotion, so far, has come from a woman visitor from Catford who is giving rousing speech outside the bank invoking the crowd to remember “the suffering of the Lord on Good Friday.

Ask for his forgiveness, acknowledge that you have gone astray,” she says.

Updated at 10.42am GMT

10.26am GMT

Some branches don’t open on time

It’s clear now that several branches failed to hit the noon deadline to open their doors:

10.22am GMT

At some branches, customers are being allowed in one at a time to ensure order.

Everyone was also handed a copy of the capital control decree agreed overnight – so they are aware what they can, and cannot, do

10.12am GMT

This branch wasn’t quite ready to open, though:

10.11am GMT

No panic here

People began entering one Bank of Cyprus branch in Nicosia in an orderly fashion, under the watching gaze of Sky News.

There was a security guard on hand to prevent a crush inside, but no suggestion of panic.

One gentleman, Mr Lucas (80), explained:

They have stolen our money… which we have been working for 60 years.

How are we going to live?

Updated at 10.27am GMT

10.01am GMT

And the banks are open, with one lady taking the time to put a reporter in their place:

Updated at 10.09am GMT

9.59am GMT

Speaking of Laiki, Tanya Talaga of the Toronto Star flags up that customers are encouraged not to abuse its bank staff today:

Many Laiki staff are likely to lose their jobs when its toxic assets and large deposits are placed in a ‘bad bank’ and run down, with its small deposits heading to Bank of Cyprus.

The queuing customers don’t look likely to riot, though. Many are elderly people, who don’t own ATM cards.

9.55am GMT

The entire board of Laiki Bank (Cyprus Popular Bank) have submitted their resignations, according to a filing to the Athens stock market (Reuters reports). Laiki, of course, is being wound-down under the bailout agreement.

9.48am GMT

Cyprus: still calm as banks get ready…..

9.44am GMT

Cyprus bank deposits fell before bailout – ECB

Now this is interesting. Private sector deposits in Cyprus fell by 2.2% in February, to €46.4bn, according to data released by the European Central Bank.

The drop in savings levels, which matches a fall in January, came as deposits in Greece rose by 2.2%, to €171bn.

Such monthly figures are volatile, but they do suggest that some Cypriot depositors were canny enough to shift their savings abroad before the bailout was agreed (on 16 March).

Martin van Vliet of ING commented:

A further sharp decline in Cypriot bank deposits in March looks all but guaranteed.

More importantly, however, next month’s figures will shed more light on how (large) depositors in other peripheral countries have reacted to the uninsured-depositors-will-be-hit Cyprus bailout deal.

9.33am GMT

Hats off to the Telegraph’s Nick Squires for interviewing the Cypriot with the parrot on his head (see 9.00am) outside a bank branch.

The man is 87, the parrot is 67. One of them is called Costas; it is not clear which as his English is negligible.

More here.

9.22am GMT

Helena Smith: The shock in Nicosia

The scene on the ground in Nicosia is quiet but, as our correspondent Helena Smith reports, people are also struggling to cope with the trauma of recent days.

Helena writes:

On the streets of Nicosia it is busy as usual. At the best of times the Cypriot capital is a sleepy place, languorous and laid back.On the face of it today is no different – shops are open, clinics are accepting patients, people are sweeping the front steps of their homes and apartment blocks.

When I ask a Greek Cypriot Orthodox priest in a stovepipe hat whether today is a big day, he responds with a simple shrug and smiles. But there is no denying that this is a populace in deep shock with many repeatedly likening what has happened to them with the sudden death of a loved one.

“We’re feeling the same sort of emptiness,” said Afrodite Elisaou, a doctor whose husband works in Laiki and still has no idea whether he will have a job tomorrow.

“It’s the shock of it happening overnight, of going to sleep thinking you have a job and waking up not having one. Had all this happened to us gradually, and not in a day, it would have been much better.”

9.13am GMT

Photos: Cyprus banks get ready

A couple of photos from inside a Laiki Bank branch.

Laiki is being wound-up under the bailout deal agreed last week, but its customers (with under €100k) will be transferred to Bank of Cyprus.

9.00am GMT

If the bank re-opening goes smoothly, expect to see a lot of this gentleman and his pet parrot:

8.47am GMT

EC backs capital controls, for now…

The European Commission has supported Cyprus’s decision to impose capital controls, but urged the country to lift them as soon as possible.

In a statement this morning, the EC said it had made a ‘preliminary assessment’ that the measures restricting the movement of capital are legal:

In current circumstances, the stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest and public policy justifying the imposition of temporary restrictions on capital movements.

The EC added that it will continue monitor the need to “extend the validity of or revise the measures”, to make sure they are proportionate to the need to maintain financial stability in Cyprus.

While the imposed restrictive measures appear to be necessary in the current circumstances, the free movement of capital should be reinstated as soon as possible in the interests of the Cypriot economy and the European Union’s single market as a whole.

Here’s the statement: Statement by the European Commission on the capital controls imposed by the Republic of Cyprus

8.31am GMT

Capital controls decree

As Hoth25 wittily pointed out in the comments threadt below, Cyprus bank customers can only withdraw €300 from their account per day. So you can’t simply show up, empty your account and transfer it to your mattress.

That restriction was confirmed under the capital controls announced late last night. You can see the final decree on capital controls here:

It’s broadly as expected:

cashing cheques is banned,

people can only carry €1,000 each when they leave the country

Savings accounts cannot be accessed early (except to pay a loan)

transferring funds abroad is heavily restricted: (businesses must seek approval for payments over certain levels, people abroad can only withdraw €5,000 per month on their cards, payments to students overseas are capped at €5k+ tuition fees per quarter).

And the decree “shall apply for a seven day period starting from the day of its publication in the Official Gazette of the Republic”.

Updated at 12.09pm GMT

7.57am GMT

Another sign of early calm – journalists outnumbering customers at this bank:

Matina also confirms that there’s “no hysteria”, but security guards are stationed outside branches.

7.55am GMT

Early calm in Cyprus ahead of bank reopening

The situation in Cyprus appears pretty quiet so far.

Instead of a bank run, there are reporters racing around the branches — and the good news is that they haven’t found any signs of trouble.

Cash is being delivered by security teams to branches, that are currently expected to open in 2 hours time.

7.39am GMT

Cyprus stock market drops plans to reopen

Breaking news: the Cyprus stock market has just announced that it will not reopen his morning.

That’s a surprise — the bourse had been scheduled to begin trading after its own suspension.

More as we get it….

Updated at 7.40am GMT

7.32am GMT

Cyprus banks prepare to reopen

Good morning, and welcome to our rolling coverage of the crisis in Cyprus.

What happens if you close a country’s banks for almost two weeks, restrict cash withdrawals, agree swingeing controls on taking money out of country, and then reopen the branches again?

Panic? Anger? Or calm?

We’ll find out this morning, as Cyprus’s banks open their doors for the first time since the country signed up for its ill-fated bailout package 12 days ago.

It’s a remarkable situation — last night, trucks (apparently) carrying containers of euros arrived in Nicosia amid tight security. Hundreds of staff from the private security firm G4S are also guarding branches and shipping money around Cyprus to ensure branches have sufficient funds to cope.

The banks are due to reopen at noon Cyprus time, and run until 6pm, so 10am-4pm GMT.

Last night Cyprus finally agreed the details of tough capital controls to limit money flooding out of the country. Limiting people to taking out just €300 per day is meant to prevent a bank run.

So perhaps all will be calm. We’ll see….

Updated at 8.03am GMT

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In the broadcast today: Will the EUR Damage Last beyond the Cyprus Debacle? As the Cyprus debacle continues to raise anxiety levels by creating uncertainty and a sense of distrust throughout the euro-area, we examine the damage that has been inflicted on the EUR and ponder its long term implications for the single currency, we analyze the bearish breakout in the EUR/USD currency pair, we note the resumptions of the downtrend in the GBP/USD pair, we keep an eye on the USD/JPY currency pair, we highlight the market’s reaction to the capital controls proposed by the government in Cyprus, the U.K. GDP, the Euro-zone Economic Sentiment, and the U.S. Pending Home Sales, we discuss new forecasts from Bank of New York-Mellon and Morgan Stanley, and prepare for the trading session ahead.

Restrictions on how much money can be taken out of the country, including bans on checks cashed. Will banks re-open on Thursday? More protests due this afternoon. Bank of Cyprus CEO ‘fired’. Malta and Luxembourg: we’re not like Cyprus…



Powered by Guardian.co.ukThis article titled “Cyprus crisis: tough capital controls agreed – live” was written by Graeme Wearden, for guardian.co.uk on Wednesday 27th March 2013 16.10 UTC

4.10pm GMT

We’re still waiting for an official announcement from the Cypriot government on the capital controls.

In the meantime, Greek newspaper Kathimerini (which broke the news of the decree alongside the WSJ/Dow Jones this afternoon) has this report:

Cyprus decides on capital controls, including ban on checks being cashed.

3.47pm GMT

And here’s more reaction:

3.45pm GMT

Hats off to Janine Louloudi, a freelance journalist working in Nicosia, for translating the government decree on capital controls into English (you can download it here).

3.16pm GMT

Nathan Morley, reporter at the Cyprus Mail, explains how the ban on cashing cheques will hurt people:

3.06pm GMT

The instant reaction to Cyprus’s capital controls splits into two camps — one warning that the new measures will have a chilling effect on its economy, and the other predicting that the measures will last much longer than seven days.

2.57pm GMT

There’s no information about restrictions on ATM machines (although here may be more details still to leak). But, of course, people are already limited to taking out just €100 per day.

2.50pm GMT

Capital Controls annouced

Details of Cyprus’s capital controls are now hitting the newswires.

Here are the key points (mainly via Dow Jones and Reuters).

• All savings accounts must run until their expiry date – with no early withdrawals allowed.

• Cashing of cheques will be suspended, but ‘cheque deposits’ will be allowed.

• Payments out of the country are suspended, with certain exemptions:

a) Individuals will only be allowed to take €3,000 in cash on each trip out of the country.

b) Import payments will be allowed when ‘the relevant documents’ are provided to the authorities.

c) Cypriots will only be allowed to transfer up to €10,000 per quarter for fellow citizens who are studying abroad.

• All credit/debit card transactions abroad will be capped at €5,000 per person, per month.

• The measures will apply to all accounts, regardless of the currency it uses.

• They will run for seven days

Reaction to follow

Updated at 3.25pm GMT

1.53pm GMT

We’re running a poll today, on how long it will take for the restrictions on Cyprus’s financial system to be lifted:

How long will the capital controls in Cyprus last?

12.22pm GMT

The cash-only economy

These photos from Cyprus today show how customers at at petrol station in Nicosia are only allowed to pay by cash.

11.55am GMT

Early details of capital controls…

Capital controls to be imposed in Cyprus will limit foreign transactions and capital outflows but not movements of money within the country itself, according to the head of its chamber of commerce.

Phidias Pelides made the comments to reporters after meeting government officials, saying:

We have been assured that limitations will not affect transactions within Cyprus at all.

Where there will be limitations is on what we spend abroad and also on capital outflows.

(via Reuters)

That would prevent the threat of capital racing out of Cyprus, draining its banks and creating a deeper liquidity crisis.

We still don’t have confirmation that the banks will definitely open on Thursday….

Updated at 12.04pm GMT

11.46am GMT

Over on Twitter, Economist Hulk is explaining the nitty-gritty of economics to the masses (once HULK gets his follower count-up, anyway):

Another distinguished fund manager with too much time on his hands? Or perhaps a journalist desperate to throw off the chains of impartiality and shout what s/he really thinks.

Updated at 11.51am GMT

11.31am GMT

Malta and Luxembourg are not Cyprus, say Malta and Luxembourg

Malta and Luxembourg have both denied claims that they could suffer the same fate as Cyprus as they both operate outsized banking sectors.

Malta’s banking sector is eight times its GDP — even more that Cyprus’s is was. But the governor of the Central Bank of Malta, Josef Bonnici, insists that it’s in much better shape.

Speaking to Reuters, Bonnini said Malta’s banks weren’t carrying the foreign sovereign debt that helped cause Cyprus’s crisis:

The problems facing Cypriot banks include losses made on their holdings of Greek bonds, whereas Maltese domestic banks have limited exposure to securities issued by the (euro zone bailout) programme countries.

Luxembourg’s banking sector is about 20 times its annual GDP, and is understandably worried by recent comments from Brussels. Its government said it is:

concerned about recent statements and declarations” on the alleged risks of outsized financial sectors.

Our Europe editor, Ian Traynor, wrote on Monday evening that Cyprus’s fate has alarmed Malta and Luxembourg:

Malta’s finance minister sat next to his German and Cypriot counterparts at the first Cyprus bailout meeting in Brussels 10 days ago and was extremely chastened by what he witnessed.

After experiencing Wolfgang Schäuble, the German finance minister, up close, he wrote an article in the Malta Times saying God help his country if it encounters similar problems in the eurozone.

Then there is Luxembourg, which along with Austria, is the eurozone’s biggest champion of banking secrecy.

Cyprus’s banks have been tamed – are Malta and Luxembourg next?

Updated at 11.35am GMT

10.51am GMT

Key event

The central bank of Cyprus has confirmed in the last few minutes that the draft capital controls are ready.

A spokesperson for the bank said it hopes to brief the public on the situation by the end of the day, and repeated the line that they will be kept flexible, if possible.

Banks to reopen tomorrow, then?….

10.32am GMT

Economic confidence across the eurozone and the EU was already low, by historical terms, before this month’s drop:

10.25am GMT

Economic confidence across the eurozone has fallen this month, reversing four months of gains and sending the euro sliding further.

The data suggests the Cyprus crisis has alarmed business leaders across the region, undermining efforts to bring the eurozone out of recession.

Economic sentiment slumped by 1.1 points to 90.0, according to the EC’s monthly measure, driven by falling optimism among manufacturers.

10.06am GMT

Protests planned in Nicosia tonight

Protests are mounting in Cyprus as the full extent of Monday’s EU-IMF bailout sinks in.

The communist Akel party, in collaboration with a group of private citizens, is planning a mass demonstration at 5.30pm local time, or 3.30 GMT, outside the offices of the European commission.

They will protest against policies that many fear have put the tiny nation state on the Greek path of economic self-destruction.

From Nicosia, my colleague Helena Smith reports:

“There is a lot of fury and growing fury,” said Giorgos Doulouka, the party’s spokesman. “We all know what awaits us, that these polices are going to lead to a huge decrease in the GDP of our country, recession and cuts in pensions and benefits because the government won’t be able to meet budget targets.”

The protest, which is expected to draw thousands, will move onto the presidential palace. Anger has been underscored by panic among employees over what awaits the Bank of Cyprus, following the Greek Cypriot finance minister’s announcement Tuesday that the lender will undergo restructuring and internal recapitalisation.

Helena has also just spoken to the former central bank governor Afxendis Afxendiou who says he thinks the banks, closed for the past 11 days, will re-open tomorrow.

9.55am GMT

Bank of Cyprus CEO fired – reports

Back in Nicosia, it appears that the chief executive of the Bank of Cyprus (BoC) has been dramatically fired.

Local media are reporting that Yiannis Kypri was ousted by the country’s central bank, following the appointment of a special administrator to run BoC.

Reuters’s Nicosia bureau has the details:

Cyprus’s central bank has fired the chief executive officer of the Bank of Cyprus, an official at the island’s largest commercial lender said on Wednesday.It follows the appointment of a special administrator to run the bank, which was saved from collapse this week under a painful European Union bailout for Cyprus.

The bank’s chairman, Andreas Artemis, submitted his resignation on Tuesday.An official at the bank, who declined to be named, said local media reports that CEO Yiannis Kypri had been removed from the post were “valid”.

The source was unable to confirm reports that the central bank had demanded the resignation of the entire board.

The reaction of BoC’s staff will be interesting. Yesterday, hundreds of employees held a demonstration at the bank’s HQ and were clearly furious with the actions of the central bank.

Updated at 10.04am GMT

9.44am GMT

UK GDP

A gobbet of economic news…. Britain’s economy only grew by a measly 0.2% during 2012, not 0.3% as previously thought. That’s according to new data from the Office for National Statistics, which also confirmed that GDP shrank by 0.3% in the last three months of 2012,

France’s economy also shrank by 0.3% in the last three months of 2012, separate data from Paris showed. Europe’s larger economies ended last year on a low.

9.30am GMT

Here’s a video clip of Paul Mason, Newsnight’s economics editor, holding a draft copy of the capital controls that should be announced in Cyprus today.

The document is littered with ‘xx’s, showing that bank managers (as of last night) didn’t have any clear idea what the capital controls would be. That doesn’t bolster confidence that they’ll all be ready to reopen tomorrow morning….

Updated at 9.35am GMT

9.25am GMT

Moody’s: eurozone overestimates its ability to curb contagion

Eurozone leaders and top officials may be kidding themselves if they reckon they’ve prevented the Cyprus bailout causing damage to other countries, a senior executive at Moody’s warned today.

Bart Oosterveld, managing director of sovereign risk at Moody’s, told Reuters that policymakers are overestimating their ability to contain the crisis.

Here’s the key quotes:

Policymakers appear very confident that market conditions are benign enough and that they have the tools to avoid contagion to other peripheral economies and their banking systems.

We think that that confidence may well be misplaced.

So far, Cyprus has remained largely a local difficulty – with the bond yields of Spain and Italy unaffected (so far). OK, the euro has lost ground – but that won’t cause alarm in Brussels (and will please countries with a strong export sector…. )

Updated at 9.28am GMT

9.06am GMT

Euro hits four-month low

The euro fell to a new four-month low against the US dollar this morning, to $1.2818.

Traders blamed the aftermath of the Cyprus bailout. Confusion reigns over whether Europe is moving towards a system where large depositors and bond holders, rather than taxpayers, will be tapped when a bank fails.

Kit Juckes of Société Générale explains:

Anger at the treatment of Cypriot depositors won’t abate and the damage to confidence in Europe’s financial system and leadership is done.

Updated at 9.10am GMT

8.46am GMT

Capital controls: further reading

The government of Cyprus said yesterday that capital controls could be lifted in a few weeks. But in the past, these restrictions have lasted much longer.

Here’s Bloomberg’s take: Cyprus Capital Controls First in EU Could Last Years

Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency….

“Thanks to political mismanagement, we now have a first: capital controls in the euro zone,” said Nicolas Veron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics in Washington.

“How long is temporary? It could turn out like Iceland, extending to many years.”

The BBC has a handy explainer: Cyprus crisis: What are capital controls and why does it need them?

And there’s a good Q&A on the Wall Street Journal.

Updated at 9.10am GMT

8.29am GMT

Michalis Sarris: Capital controls will be within ‘realms of reason’

Good morning, and welcome to our rolling coverage of the crisis in Cyprus following its bailout.

A historic day looms, as Cyprus prepares to become the first member of the eurozone to impose restrictions on the flow of money in its economy.

Finance minister Michalis Sarris says the new capital controls should be ready by noon Cyprus time, or 10am GMT. He’s already defended them in a TV interview saying:

I think they will be within the realms of reason

Banks will open on Thursday … We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals.

The capital controls are meant to prevent hordes of savers descending on Cyprus’s bank branches and cleaning the vaults out. So what might they be?

Based on the legislation passed by the Cyprus parliament, and a report by the BBC’s Paul Mason (who’s seen a draft version), it will probably include:

* Limits on cash withdrawals (currently €100 at ATM machine),
* restrictions on access to savings accounts,
* limits on paying by cheques (possibly a ban),
* restrictions on the use of credit and debit cards,
* and a ban on taking large sums of money out of Cyprus.

We’ll get the details soon, along with other developments through the day…..

Updated at 8.32am GMT

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Bailout deal for Cyprus agreed in the early hours of this morning. Heavy losses for depositors with over €100,000. Laiki’s face wipeout. Smaller savers protected. Germany: new deal is much better. Early analysis. How the drama unfolded…



Powered by Guardian.co.ukThis article titled “Cyprus agrees bailout deal with the eurozone – live” was written by Graeme Wearden, for guardian.co.uk on Monday 25th March 2013 14.20 UTC

2.20pm GMT

Irish economy shows scars of austerity

If Cyprus wants a taste of life after a few years under an IMF-led austerity package it could turn to Ireland. One fifth of shops in Ireland’s second city Cork are now vacant as the Republic suffers its worst six months of high street trading.

From Dublin, Henry McDonald reports:

The closure of Cork based electrical retailer Flor Griffin as well as UK companies like HMV and Game on Irish main streets reflects continued depressed demand among still debt ridden consumers.

The Republic’s Chambers of Commerce and Retail Excellence Ireland are demanding action such as lower rents and commercial rates to halt the retail downturn.

Evidence from trade groups over the first quarter of this year reveal that in parts of central Dublin 24% of retail units lie empty.

Overall more than ten per recent of retail units in the Irish capital lie idle while in Athlone, a town in central Ireland that successfully attracted foreign multi national investment nearly 20 per cent of shops are empty.

The ongoing downturn in domestic demand is due to frugal Irish consumers worried over mortgage and other personal debts being too frightened to spend.

Alan McQuaid, chief economist at Merrion Stockbrokers, believes the Irish government was on its way to reaching its target of 1.5% growth this year.

But McQuaid issued a warning that the Cypriot fiscal crisis could have a ripple effect on the Irish economy at the other end of the EU.

“Assuming the Cyprus problem doesn’t blow up into a full scale Eurozone crisis, then there is no reason why the Irish government can’t meet its official growth target for the second year running,” he said.

1.51pm GMT

On Wall Street the Dow Jones industrial average is up just 40 points higher at 14552, with news of last night’s deal failing to spark much of a rally.

US markets have been largely untroubled by the Cyprus news in recent weeks. Dominic Rushe reports:

Unlike the roller coaster ride US markets endured during the height of the Greek crisis, there doesn’t seem to be much fear of contagion. During the Greek crisis investors liked to point out that the Greek economy was worth about the same as the Dallas/Fort Worth area. Cyprus’s GDP at $23.57bn is a little bit more than Goodyear, the tire company, brings in in revenues each year.

The Dow snapped a four week winning streak last week, closing down 2.08 points. But that’s a mere 0.01% for the week and it actually closed up on Friday.

Updated at 1.52pm GMT

1.40pm GMT

EC: capital controls will be temporary…

European Commission officials told reporters in Brussels this lunchtime that capital controls in Cyprus are only likely to be implemented for a short time.

Commissioner Michel Barnier told reporters that:

Any measures to restrict or limit freedom of movement may only be enacted exceptionally and temporarily and that is what has been requested by the Cypriot authorities.

Capital controls will mean very tough restrictions on bank account access and the movement of cash out of Cyprus, to help prevent a bank run.

James Mackintosh of the FT points out that capital controls can be a hard habit to break:

Updated at 1.42pm GMT

12.56pm GMT

Parents fear for their children’s future in Cyprus

There were peaceful protests against the bailout deal outside Greece’s embassy in Nicosia this morning, during a parade of high school students to mark Greek independence day:

Faisal Islam, Channel 4′s economics editor, was there – and reported that parents were desperately worried about how the crisis will affect their children’s lives.

12.28pm GMT

Putin: we can restructure Cyprus’s loan

Despite describing the haircut for wealthy savers as stealing (see 11.31am), Russia has signaled that it will support Cyprus by agreeing to relax the terms of its existing loan.

President Vladimir Putin announced a little while ago that Russia will restructure the €2.5bn euro loan made to Cyprus in December 2011.

Howard Amos has the details:

“In light of the decision taken by the Eurogroup, President Putin considers it possible to support the efforts of the President of Cyprus, and also the European Commission, directed at overcoming the economic and systemic banking crisis of this island state,” Putin’s spokesman Dmitry Peskov told journalists, Interfax reported.

Cypriot Finance Minister Michalis Sarris visited Moscow last week to seek financial support from the Kremlin, but was sent away apparently empty handed. A re-negotiation of the loan, including reducing the interest rate and extending its duration beyond 2016, was one of the items discussed.

“I think the loan will be extended and the conditions adjusted,” Sarris said as he was leaving Moscow on Friday.

12.07pm GMT

President Anastasiades to address the nation tonight

The government has just announced that the Cypriot president Nicos Anastasiades will make a televised statement at 7pm today (5pm GMT), with regard to the results of the Eurogroup meeting yesterday on Cyprus.

The statement will be televised live by the Cyprus Broadcasting Corporation (Cybc).

My colleague Helena Smith adds that the government has been arguing that it did the best it could:

The Interior minister Sokratis Hasiko has said the banks will open in Cyprus tomorrow calling the deal “the best solution possible.”

“The no vote had its own negative effects and banks were put under pressure,” he said this morning. “We had got to the point where were discussing a haircut of between 50 and 60 percent … so this is the best possible solution.”

Updated at 1.31pm GMT

11.56am GMT

Poll: Is the worst over for Cyprus?

Around 90% of readers fear that worse times are ahead for Cyprus, according to a poll launched this morning (which already has hundreds of votes).

Vote here:

Does the bailout deal mean the worst is over for Cyprus? – poll

Updated at 11.58am GMT

11.31am GMT

Medvedev: Cyprus is stealing from large depositors

Russian prime minister Dmitry Medvedev has accused Cypus of agreeing to “steal” from big deposit-holders at Laiki Bank and Bank of Cyprus.

It’s the first official signal of Moscow’s displeasure.

From the Russian capital, Howard Amos reports (and explains that Medvedev was channeling Lenin):

Medvedev is the first Russian official to speak out about the Cyprus deal announced early this morning.

“They are continuing to steal what has already been stolen,” Medvedev told a government meeting, using a phrase Vladimir Lenin to answer the allegation that the Bolsheviks were thieves.

Russian officials have repeatedly compared the Cypriot bank levy to Soviet-era expropriation.

But he added the impact on Russian companies and Russian money was not yet fully clear. “We need to understand how this story will develop.”

Medvedev was an outspoken critic of the initial agreement between Cyprus and the troika of the European Commission, IMF and European Central Bank to levy a compulsory tax on deposits, describing the plan as “absurd” last week and accusing the EU of behaving like “an elephant in a china shop.”

Updated at 11.40am GMT

11.19am GMT

Larry Elliott: Cyprus could suffer a worse economic collapse than Greece

It’s a bad deal — although probably the best deal in the circumstances — and Cyprus will probably need a second rescue package, says our economics editor, Larry Elliott.

Larry writes:

For a start, Cyprus faces a bleak economic future in which the need for a second bailout looks a strong probability. It is not just that the country’s economic model has been destroyed. Nor is it simply that a brutal austerity programme is the condition for the €10bn loan.

These will both hurt, but be compounded by a ferocious credit crunch as the banks seek to shore up their balance sheets by lending less and at higher rates of interest. The risk is of a full-scale economic collapse that will result in Cyprus having a debt problem worse than that in Greece.

More here: Cyprus bailout: deeply flawed – but a best effort in desperate times

11.07am GMT

11.02am GMT

Miriam Elder: anger in Cyprus today

The long lines that we’ve seen at Cyprus ATMs have dissipated this morning, now that regular Cypriots know they won’t be immediately affected by the haircut agreed in Brussels.

But from Limassol, my colleague Miriam Elder reports that people remain distressed by the situation:

It’s also a holiday here, but the mood is pretty grim. Cypriots realise that their economy will take a huge hit — there are worries of long-term unemployment as big foreign investors are expected to seek ways to flee from the country.

Anger remains directed at the EU, and Germany in particular.

I talked to one woman who works at a hotel – she moved to Cyprus eight months ago to escape the financial crisis in Greece.

“We came here to find a better life, and it’s exactly the same thing as in Greece. Everywhere I go there’s crisis — I’m telling all my friends that I’ll go to Germany next,” said Alexandra Salmani, 32.

“Someone has to learn to say no to Merkel. They saw a rich country, decided to take their money, and destroy them. They are not human.”

As I type, newsflashes from Berlin are coming in. Angela Merkel’s spokesman is telling a press briefing that the Cypriot government must now explain to the people “why this path is difficult but right”….

10.11am GMT

Here’s video footage of last night’s eurogroup press conference where the deal was announced (for anyone who had better things to do around 2am GMT)

10.02am GMT

The Cyprus crisis has permanently changed the nature of the eurozone and and left small countries such as Luxembourg (which also has an out-sized financial sector) extremely jittery, says our Europe editor, Ian Traynor:

9.53am GMT

Schäuble: this deal is ‘much better’

The German finance minister, Wolfgang Schäuble, has declared that the deal agreed in Brussels overnight is “much better” from a German point of view than the original plan.

Speaking at a press conference in Berlin, Schäuble said that Cyprus had finally recognised that large depositors must make a much larger contribution to the bailout:

[Cypriot President] Anastasiades came to understand that it was not just Germany and the IMF that wanted a bail-in, but also the others.

Here are more newswire snaps from Reuters:

• GERMANY’S SCHAEUBLE SAYS CYPRUS DEAL IS “FAIR” FOR ALL INVOLVED

• GERMANY’S SCHAEUBLE SAYS GOAL IS TO REDUCE CYPRIOT BANKING SECTOR TO EUROPEAN AVERAGE OF THREE-TIMES NATIONAL OUTPUT

•GERMANY’S SCHAEUBLE SAYS CYPRIOT BANKS SHOULD BE REOPENED AS SOON AS POSSIBLE, TALKS ON THIS TO TAKE PLACE TODAY

• GERMANY’S SCHAEUBLE SAYS GOAL IS TO COMPLETE EUROPEAN PARLIAMENTARY APPROVALS OF CYPRUS DEAL IN THIRD WEEK OF APRIL

Updated at 10.53am GMT

9.42am GMT

Nicos Anastasiades, Cyprus’s president, just issued a short statement thanking people for their support during yesterday’s negotiations in Brussels:

No mention of the reports that he threatened to resign during the negotiations…

9.18am GMT

Michelle Caruso-Cabrera of CNBC has been taking a photo of the same ATM machine in Nicosia in recent today. This morning, it’s pretty quiet.

Updated at 9.37am GMT

9.15am GMT

Gary Jenkins: this is just the start of Cyprus’s problems

So, is this the end of Cyprus’s problems? My colleague Josephine Moulds just put that question to bond analyst Gary Jenkins of Swordfish Research, prompting a huge laugh from the other end of the phone. He said (once he’d recovered himself):

In a way this is just the beginning of their problems. They’ve stopped the old business model [attracting deposits from wealthy individuals] but it hasn’t been replaced with anything else.

He notes that the EU has made no economic projections for Cyprus, so has no idea how or when it will get its €10bn back from this country.

They are never going to see that €10bn back. The economy is crushed for the next God knows how many years. As soon as people can take their money out the banks, they will take it out. If I’ve €10,000 in the Bank of Cyprus, why would I leave it there?

Anyone’s guess would be that the economy is going to crash in these circumstances. Confidence has disappeared. What is the impact on Cypriot companies? Has noone looked at how many corporates have over €100,000 in the bank? Who’s going to want to do business with Cypriot corporates right now?

Gary’s conclusion…

It’s a nuclear bomb to crack a nut. If you’re worried about money laundering go after money launderers. Don’t go after Cypriot nationals.

The deal will also have a major impact on banks in Spain and Italy, he says.

If you’re a US company, US politicians have been talking about how to get the money back from overseas. No non-Italian and non-Spanish companies are going to keep their money there.

Similarly, he says, normal people banking in Spain and Italy will now likely pull their money out of the bank at the first sign of trouble, prompting disastrous bank runs.

With regard to this subject I must say I have found some of the comments as to why this wouldn’t happen interesting. Many have said how much better capitalised Italian and Spanish banks are, and how it is well known that the Cypriot banking system as a percentage of GDP was way bigger than other European countries.

Quite right (although I have my doubts as to the real strength of many of these banks) but do they really think that the average person in the street has any interest about such statistics? In the event of a major problem do you think that people will say ‘oh I will leave my money in the bank because their tier one ratio is 10% and as our banking system is nowhere near as big as the Cypriot one on a relative scale?’ If they do they are likely to be crushed underfoot in the rush as others decide not to take any chances.

9.11am GMT

European Commission President Jose Manuel Barroso looked satisfied, and tired, as the Eurozone meeting broke up early this morning:

9.08am GMT

The best early reaction

Joseph Cotterill of FT Alphaville has written the best detailed analysis of the Cyprus deal: Scratch one stupid idea [Updated]:

Here are the key points (head over to AV for the full read (then come back!))

1) In case you didn’t get the memo the first time, this still isn’t about spanking money-launderers. (because there’s no differentiation between foreign and domestic customers with over €100k)

2) It’s a depositor bail-in — for two specific banks, one of which is in full resolution. (rather than forcing all customers at all banks to contribute, as in the first – hated – bailout plan)

3) It’s also a senior bank bond bail-in. (Holders of Laiki’s senior unsecured debt look fully wiped out – those at Bank of Cyprus will take a brisk haircut)

4) Emergency Liquidity Assistance. — Was this the week we found out that ELA will be protected from default no matter what? (under the deal, the assistance supplied by the European Central Bank to Laiki is now transferred to Bank of Cyprus)

* * * * * *

And over at Reuters, Felix Salmon points out that the winding-down of Laiki is a rather big deal for a rather small country:

The resolution of Laiki is going to give the world a very real example of what happens when a too-big-to-fail bank is allowed to fail.

Laiki is small by global standards, but very large by comparison with Cyprus’s GDP. If Cyprus can survive Laiki’s collapse, then maybe — just maybe — the world could cope with the “resolution” of a big bank like Citigroup. But that’s a very big “if”.

More likely, the costs to Cyprus of allowing Laiki to fail will be enormous, both politically and economically. And 800,000 Cypriots will for years to come be paying the price of what Mohamed El-Erian elegantly calls “bailout fatigue”.

More here: Cyprus: It’s not over yet

8.52am GMT

There’s no sign of celebration in Cyprus this morning, as people digest the news that the bailout has been secured in return for the downsizing of its banking system and heavy losses for wealthy savers:

8.38am GMT

30% haircut for Bank of Cyprus’s wealthy savers

Just in: Depositors in Bank of Cyprus with over €100,000 are likely to lose 30% on their holdings, the chairman of the island’s parliamentary finance committee has predicted.

Nicholas Papadopoulos made the prediction to Irish radio this morning, saying:

I haven’t heard a formal announcement about the haircut, but this is the figure I heard.

No update on the position for big depositors at Laiki — but clearly they’ll lose more than the crowd at BoC, and they could lose the lot (over €100k).

Updated at 8.40am GMT

8.24am GMT

European shares gain

European markets have risen in early trading as investors react to the news from Brussels.

FTSE 100: up 40 points at 6432, + 0.6%

German DAX: up 77 points at 7989, +1%

French CAC: up 53 points at 3823, + 1.5%

Italian FTSE MIB: up 121 points at 16166, + 0.75%

Spanish IBEX: up 79 points at 8403, +0.89%

And in Asia, the Japanese Nikkei finished 1.7% higher.

The euro, though, is bobbing around $1.30 — just 0.1 cents higher than on Friday night. Not exactly a monster rally….

8.06am GMT

Capital controls loom

The deal won’t prevent tough capital controls being imposed on Cypriots. We saw an early taste of it yesterday, when ATM cash withdrawal limits were cut to €100 per day

The controls will also make it hard, or impossible, to transfer money between accounts or out of the country – to avoid a bank run draining the country’s remaining banks.

During this morning’s press conference, EC commissioner Olli Rehn said he hoped Cyprus would be able to raise them soon, but the reality could be months of restrictions.

7.53am GMT

7.51am GMT

The bank restructuring deal

Full details of the Cyprus deal are still emerging this morning, but the top line is that wealthy depositors are being hit much harder than in the original plan.

Here’s what we understand:

• All deposits under €100k have been protected.

Laiki Bank (or Popular Bank) will be wound down and split into a ‘good’ and ‘bad’ bank. Thousands of jobs are likely to be lost.

• The ‘good’ bit of Laiki (smaller savers) will being moulded into Bank of Cyprus.

• The bad bit, containing its uninsured deposits and toxic assets, will be wound down over time.

• Those with savings over €100,000 at Laiki, along with bond holders and shareholders, will all make a “full contribution” to the restructuring. That is being taken as a signal that wealthy depositors could be wiped out completely – but the full picture may take a while to emerge.

As Gary Jenkins of Swordfish Research put it:

Whilst there was no official confirmation I assume that deposit holders over €100k in Laiki Bank will be totally wiped out, but that is just an assumption from the language used.

• Uninsured deposits (€100k and above) in Bank of Cyprus will be frozen, and remain suspended until the bank has been recapitalised. It’s not clear what haircut they will suffer — there was talk of 40% plus in Brussels last night.

7.36am GMT

You can read the statement released by the eurogroup (eurozone finance ministers) here.

7.28am GMT

Key event

if you missed Sunday’s bailout drama, you can relive all the excitement in yesterday’s Cyprus crisis liveblog:

Cyprus bailout: last-ditch deal agreed – as it happened

Highlights of the press conference start at 1.30am (it’s been quite a night)

7.13am GMT

Last-minute Cyprus deal agreed

Good morning. Cyprus has struck a last-gasp draft deal with its international lenders overnight which should mean it secures its desperately needed €10bn bailout and avoids crashing out of the eurozone.

In return for the aid, the Cyprus government has committed to imposing very heavy losses on depositors with over €100,000 in the bank. Its second-largest bank, Laiki, will be shut down while the country’s largest lender, Bank of Cyprus, is being heavily restructured.

The agreement was hammered out after a classic marathon session of talks in Brussels from Sunday lunchtime, in which Cyprus’s president Nicos Anastasiades reportedly threatened to resign rather than accept the terms demanded by the country’s lenders.

But a deal was finally put together out, culminating in a press conference at 1.30am GMT.

There was relief in Brussels early this morning, but Cyprus still faces a troubled future, with its banks remaining closed today.

Cyprus’ finance minister Michalis Sarris told reporters:

It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone.

The deal should mean that the European Central Bank lifts its threat to withdraw liquidity from the Cypriot banking sector.

It also appears that the deal will not need the approval of the Cypriot parliament.

But many questions remain: how will the Russians react? Will the deal be acceptable in Cyprus?…

….And just how much damage has the chaos and confusion of the last week caused to Cyprus, and the rest of the eurozone?

We’ll be tracking all the developments throughout the day.

Updated at 7.22am GMT

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Published via the Guardian News Feed plugin for WordPress.

President Nicos Anastasiades in Brussels for vital talks on the Cyprus. Time running out. Saturday’s deadlock. Anastasiades, Lagarde, Draghi to meet shortly. Eurogroup meeting at 5pm GMT. Archbishop of Cyprus to appeal to Russian businessmen…



Powered by Guardian.co.ukThis article titled “Cyprus in last-ditch bid to agree bailout – live” was written by Graeme Wearden, for guardian.co.uk on Sunday 24th March 2013 13.52 UTC

1.51pm GMT

Nicos Anastasiades has completed his talks with Jose Manuel Barroso and Herman Van Rompuy (Ian Traynor reports from Brussels).

The Cypriot president has now headed for talks with Mario Draghi, Christine Lagarde and Olli Rehn over lunch.

(so this crunch meeting of the main players is actually being split into at least two different sessions).

Updated at 1.51pm GMT

1.38pm GMT

Cyprus looking to Greece

Cyprus’s politicians are hoping that Greece will help fight its corner in tonight’s eurogroup meting:

Dimitris Papadakis, the secretary of EDEK, Cyprus’s social democrats (part of the opposition in parliament), said today that Cyprus want “substantial assistance” from Greek finance minister, Yannis Stournaras.

We need practical assistance from Greece because Eurogroup’s attitude continues to be that of a blackmail, and purely anti-European.

(more here)

However the views of Germany’s finance minister, Wolfgang Schäuble, will carry more weight tonight – and he has already warned that Cyprus could not avoid very tough times “not because of European stubbornness, but because of a business model that no longer functions”.

1.06pm GMT

Word from Brussels that president Nicos Anastasiades and his team of Cypriot officials and ministers have arrived, ready for this afternoon’s meeting:

Updated at 1.10pm GMT

12.45pm GMT

The daily cash withdrawal limit at Laiki Bank’s cash machines in Cyprus appears to have been cut from €260 per day to €100, according to Michelle Caruso-Cabrera of CNBC.

She just tweeted a photo showing a new warning sign being added:

UPDATE: Nothing official from Laiki yet, so it’s not clear if this is a general policy change.

• If anyone in Cyprus can confirm, please post below the line or email me at graeme.wearden@guardian.co.uk – thanks! •

Laiki’s ATM machines in Cyprus have been disbursing cash to a steady stream of customers in recent days:

Updated at 1.15pm GMT

12.33pm GMT

An EU spokesman has said European Council president Herman Van Rompuy will lead this lunchtime’s meeting between Cyprus and the EU. He hopes the talks can ease the way to a deal at tonight’s meeting of the eurogroup.

Via AP:

Van Rompuy’s role will not be to reach a final agreement, but to facilitate efforts to find a solution, spokesman Preben Aamann said.

Any new proposal would have to be approved Sunday evening by the Eurogroup, the gathering of finance ministers from the 17 EU countries that use the euro currency.

(updated)

Updated at 1.52pm GMT

12.22pm GMT

Meeting to begin at 1pm GMT

A crucial meeting will begin in Brussels in 45 minutes.

Nicos Anastasiades, Christine Lagarde, Mario Draghi, Herman Van Rompuy (EC president), Jose Manuel Barroso (European Commission president) and Olli Rehn (Commissioner for financial stability) will gather at 2pm (1pm GMT) to discuss the crisis.

As the Telegraph’s Bruno Waterfield explains here, the international lenders may force president Anastasiades to hammer his largest bank, the Bank of Cyprus.

Under the current plan, the Bank of Cyprus, will have deposits of more than €100,000 hit by a 20pc levy, while other banks will be hit for 4pc, in a desperate attempt to stave off financial meltdown.

The Bank of Cyprus must also absorb Laiki assets, insured deposits and take on its ECB debt – which could add up to €9.1bn – as the bank would be wound down.

In total Cypriot bank asset total €68bn, with deposits of more than €100,000 totalling €38bn. The Bank of Cyprus has over a third of bank deposits.

12.11pm GMT

Archbishop of Cyprus to plead with Russians

The Archbishop of Cyprus is planning to hold talks with Russian investors later this week in an effort to stop them fleeing the country, according to Greece’s Kathimerini today.

Archbishop Chrysostomos is hoping to remind them how they’ve benefited through their time in Cyprus:

The leader of the Church of Cyprus said after the Sunday mass in Nicosia that on Thursday he is going to host a dinner with the chiefs of Russian companies that are active in Cyprus to convince them against taking their money away from the island so that the situation does not deteriorate further.

He added that he intends to remind them that their capital has for a long time been growing through interest, they have benefitted from their presence in Cyprus and that had they gone to another country the interest they would have got would have been just above zero.

Chrysostomos also called for the previous Cypriot government (who ruled the island until last month) to stand trial for creating the current financial situation. And he added that Cypriot people must learn to live on tighter budgets as well.

So might the Church….

Updated at 12.11pm GMT

11.58am GMT

Saturday’s deadlock

A quick recap. Cyprus spent Saturday locked in negotiations with officials from the Troika in Nicosia, over how to raise its contribution to its bailout fund.

The talks centred on the Cypriot banking system — and the idea of a deposit tax (which was first agreed last weekend, then rejected by MPs on Tuesday, and now resurrected.)

There was a burst of excitement last evening after senior Cypriot official told Reuters that the parties had agreed to a 20% on deposits over €100,000 at Bank of Cyprus, and a 4% hit on €100k+ deposits at other banks.

But negotiations ended after midnight without a deal being announced, and the Cyprus government saying they had reached “a very delicate phase”.

Other officials blamed the ‘inflexibility’ of the IMF team for the deadlock, warning that “”we are not even near an agreement with the troika.”

There were rumours on Friday that the Troika had now hiked its demand on Cyprus, saying it must contribute €6.7bn to the bailout package, not the original €5.8bn.

The reason? Conditions in Cyprus have worsened since the bailout began. And the IMF can only lend to a country if it is confident it will get its money back.

While the two sides argued, Nicosia saw the largest protests since the crisis began last week. Here’s a couple of photos:

Updated at 12.48pm GMT

11.34am GMT

President Nicos Anastasiades is expected to meet with Christine Lagarde, head of the IMF and Mario Draghi, head of the ECB, this afternoon, to discuss the crisis enveloping the Cyprus by the hour.

He will also hold talks with presidents of the European commission and European council, Jose Manuel Barroso and Herman Van Rompuy.

Our Europe editor, Ian Traynor, reports from Brussels:

Anastasiades is expected to unveil new proposals to hit wealthy Cyprus banking clients with heavy levies on their deposits in order to come up with about one-third of the €17bn bailout the country needs.

A week ago he insisted on minimising the levy to less than 10% to prevent foreign investors, mainly Russians and British, pulling their money out of Cyprus. Now he is being forced to double that levy to 20%, according to reports from Nicosia late on Saturday, while sparing all savers with less than €100,000.

More from Ian here.

Updated at 11.34am GMT

11.22am GMT

Cyprus president in Brussels for crucial talks

Cyprus’s future in the eurozone could be decided today as president Nicos Anastasiades flies into Brussels for crucial talks over its bailout package, in an effort to avert financial catastrophe.

With time running out, Cyprus and its Troika of lenders have just hours to agree a deal, An emergency meeting of eurozone finance ministers and the International Monetary fund begins at 6pm Brussels time (5pm GMT), and should determine whether Cyprus receives its desperately needed €17bn loan package.

Failure would put the country’s future in the eurozone at grave risk, with vital liquidity provided by the European Central Bank due to be withdrawn on Monday.

According to reports last night, Cyprus may impose a 20% levy on deposits over €100,000 at its biggest lender, the Bank of Cyprus, with other large depositors losing around 4%.

A government spokesman has already warned that Anastasiades is tackling a huge challenge. He said the Cypriot team in Brussels face:

a very difficult task to accomplish to save the Cypriot economy and avert a disorderly default if there is no final agreement on a loan accord.

We’ll be following the action in Brussels, and in Cyprus, through the day.

Updated at 11.26am GMT

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In the broadcast today: EUR and USD New Trading Week Outlook. With Cyprus expected to retain its center stage spot in the week ahead as the troubled country faces a deadline to come up with a solution to the crisis and with important economic reports scheduled for release from the U.S and the U.K., we explore the outlook for the EUR, the USD and the GBP, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we take a close look at the price correction in the GBP/USD pair, we note the pullback in the USD/JPY currency pair, we highlight the market’s reaction to the Cyprus government’s Plan B, the U.K. Retail Sales, the Euro-zone Composite PMI, and the U.S. Jobless Claims and Existing Home Sales, we discuss new forecasts from Morgan Stanley and Bank of New York-Mellon, and prepare for the trading session ahead.

Cyprus leaders meeting to discuss Plan B. Bank levy ‘not discussed’ today. Longer lines at cash machines. The European Central Bank gives Cyprus until Monday to hammer out a bailout deal. Eurogroup president takes responsibility for savings levy…



Powered by Guardian.co.ukThis article titled “Cyprus crisis: Government to create ‘solidarity fund’ after ECB issues Monday ultimatum – live” was written by Graeme Wearden, for guardian.co.uk on Thursday 21st March 2013 14.46 UTC

2.31pm GMT

People are continuing to wait patiently in line at Laiki cash machines in Cyprus. The queues all appear pretty calm:

2.23pm GMT

Key event

In Cyprus, politicians and officials are continuing to work on the details of a new solidarity fund, in an effort to find new funding before the ECB carries out its threat to withdraw liquidity.

Demetris Syllouris, who leads the right-wing Evroko, took part the negotiations led by president Nicos Anastasiades this morning. He has now reporters that the fund would seek donations from ordinary Cypriots, businessmen and foreign investors, according to AP.

1.59pm GMT

Shares have fallen on Wall Street at the start of trading, with the Dow Jones dropping 53 points to 14457, -0.4% as investors catch up with the reports of longer queues at some ATM machines in Cyprus.

European stock markets are still in the red (FTSE 100 down 0.8%, Germany down 1.2%, France down 1.5%).

1.46pm GMT

Analysis: what is the ECB doing?

Threatening to cut funding to Cyprus’s banks is a dramatic step by the European Central Bank, but it reflects fears that Europe’s central bank itself could suffer significant losses if a bank run began in Cyprus.

Under the ECB’s own rules, it can only supply liquidity to a eurozone bank if it is confident that it remains solvent. Without the IMF/EU bailout, Laiki bank’s future looks particularly troubled.

And the ECB’s governing council must fear that it could incur very large losses itself if it continued to supply liquidity to Cypriot banks while depositors systematically emptied their accounts.

The ECB has currently extended €9bn of liquidity to Cyprus’s banking system. Total deposits has been estimated at €60bn, with perhaps €20bn belonging to Russian depositors.

So, the current liquidity probably isn’t enough to cover an actual bank run.

If the ECB offered more liquidity to Cypriot banks to cover deposit withdrawals, and the banks collapsed anyway, then Cyprus could still leave the euro and default on its liabilities under the Target 2 system (Europe’s interbank payment system).

As the Open Europe think tank explains:

Extending the ELA without a clear deal could lead to a significant transfer of risk towards the ECB and questions over its credibility. This would be a particularly poisonous debate in Germany, something which neither the ECB nor the German government would want ahead of the German elections in September.

With this in mind, it is possible to see why the ECB has taken such a strict line here. That said, it certainly ramps up the pressure over the next few days.

Lastly, although the ECB is taking the decision based on technical considerations, it’s clear the good folks in Frankfurt are now deeply embroiled in a highly political debate – precisely what the ECB wants to avoid at all costs.

More from Open Europe here.

1.28pm GMT

Sony Kapoor of the ReDefine thinktank argues that the ECB’s threat to turn off support for Cyprus next week is a challenge to the democratic process – and puts more pressure on eurozone leaders:

12.52pm GMT

Key event

Russia’s two largest state-owned banks have now both said they are uninterested in buying Cypriot banks, reports Howard Amos.

The island-state’s banking assets were one of the bargaining chips Cypriot Finance Minister Michalis Sarris was hoping to be able to use to tempt the Kremlin into offering a rescue package.

“We don’t, of course, have any plans of that sort,” said Andrei Kostin, the head of Russia’s second biggest bank, VTB. “Our interests are that we are given the opportunity to carry out payments and access the accounts of our clients.” VTB has a subsidiary on Cyprus called Russian Commercial Bank which is at risk of losing “millions of euros” in a compulsory levy.

German Gref, the head of Russia’s biggest bank, Sberbank, said last night that he had been approached about buying Cypriot banks, but had turned the offer down.

12.45pm GMT

Medevdev: Cyprus shouldn’t impose bank levy

Over in Russia, prime minster Dmitry Medevdev has said that he is counting on Cyprus’ problems being solved without an compulsory levy on depositors.

“Sooner or later it will be necessary to sort out all the problems there, and I hope that the solution will not be with confiscations, but will be rational and modern,” he said at a government meeting in Moscow on Thursday, the Interfax news agency reported.

Last night Medvedev told journalists that the EU’s behaviour in Cyprus was similar to that of an “elephant in a china shop” and that the plan to tax deposits “looked like theft.”

Medvedev has also came up with a novel solution to turn Cyprus’ problems to Russia’s advantage. The Kremlin should develop the Kuril Islands and Sakhalin in the country’s Far East as new offshore banking destinations, Medvedev told government ministers.

Russia’s ownership of the Kuril Islands is disputed by Japan, and visitors currently require special permission from the security services. Sakhalin is a rain-swept island off Russia’s Pacific coast and the site of a former Tsarist penal colony.

(that’s via Howard Amos in Russia)

12.32pm GMT

Another selection of photos from Nicosia of the lengthening queues at cash machines run by Laiki Bank, one of the two lenders who could collapse if the ECB follows through on its threat to withdraw emergency liquidity next week

Updated at 12.33pm GMT

12.25pm GMT

Updated at 12.34pm GMT

11.56am GMT

Reports from Cyprus that the country’s cabinet will meet to discuss the proposal for a solidarity fund at 6pm local time (4pm GMT or noon PDT).

11.54am GMT

Martin Wheatley, chief executive of Britain’s new Financial Conduct Authority (FCA) which begins life formally next month, has admitted that contagion from Cyprus is a concern.

He also said that the idea of putting a levy on bank accounts “undermines confidence in the banking system” (a reference to the eurozone’s €100,000 deposit protection scheme)

Wheatley was speaking at a press conference in London (my colleague Jill Treanor reports). The FCA will officially replace the Financial Services Authority (FSA) from the start of April, with tougher powers to keep the UK financial industry in line and protect customers.

11.46am GMT

Another option for Cyprus could be to use the energy resources off its coastline as collateral for a stability fund. That fund could then issue bonds to investors, raising some/all of the €6bn which Cyprus needs to satisfy the IMF and the EU:

11.33am GMT

There are several reports of longer queues at some of Cyprus’s cash machine’s this morning – specifically those belonging to Laiki bank — Cyprus’s heavily indebted second-largest lender.

Michelle Caruso-Cabrera, CNBC’s chief international correspondent, tweets two photos:

And here’s another, from freelance journalist Janine Louloudi:

11.18am GMT

Worried officials discussed Cyprus leaving the euro – Reuters

Eurozone officials are increasingly alarmed about the situation in Cyprus, according to the notes of a conference call seen by Reuters.

During the call, which took place last night, officials admitted they were “in a mess” as they discussed whether capital controls (limits on bank withdrawals and cash movements) could protect the country.

Cyprus didn’t attend the call – another worrying sign – as other officials talked about the risk of the country quitting the eurozone.

Reuters reports:

In detailed notes of the call seen by Reuters, one official described emotions as running “very high”, making it difficult to come up with rational solutions, and referred to “open talk in regards of (Cyprus) leaving the euro zone”.

The call was among members of the Eurogroup Working Group, which consists of deputy finance ministers or senior treasury officials from the 17 euro zone countries as well as representatives from the European Central Bank and the European Commission. The group is chaired by Austria’s Thomas Wieser.

Cyprus decided not to take part in the call, a decision that several participants described as troubling and reflecting the wider confusion surrounding the island’s predicament.

“The (Cypriot) parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us,” the French representative said, according to the notes seen by Reuters. “We have never seen this.”

The full story is online here: Exclusive: Euro zone call notes reveal extent of alarm over Cyprus

Updated at 11.22am GMT

10.53am GMT

Here’s the quote from the speaker of the Cypriot parliament, Yiannakis Omirou, following this morning’s talks on a new bailout plan:

We didn’t discuss a (deposit) haircut and we are not reverting to it.

10.47am GMT

Report: Cyprus to create National Solidarity Fund

Reports out of Cyprus in the last few minutes suggest that the country’s leaders have decided to create “national solidarity fund”, at this morning’s talks in Nicosia.

Averof Neophytou, who is the deputy leader of the ruling Democratic Rally party, made the comments to reporters in Nicosia.

There’s no word on what the fund would includes – but reports last night suggested pension assets, various state assets, and even property owned by the Church of Cyprus.

The parliament’s speaker has also been speaking, suggested that a vote will not take place on the plan today. He also indicated that the leaders did not consider the issue of a bank levy — suggesting a savings tax might now be off the agenda.

More to follow!

Updated at 10.51am GMT

10.46am GMT

Video: Cyprus awaits ‘Plan B’ to avoid bankruptcy

10.30am GMT

Cyprus top central banker stays calm

Cyprus’s central bank governor, Panicos Demetriades, has declared that the country will manage to hammer out a financial support package in time.

Soeaking in Nicosia a few minutes ago, Demetriades said:

I expect a programme of support for Cyprus by Monday.

No suggestion of what it will be, though….

…but Jeroen Dijsselbloem, the Eurogroup president, made the important point during his appearance at the European Parliament’s economic affairs committee this morning: that taxing large depositors in Cyprus is a better, fairer way than raising money from taxpayers.

Dijsselbloem insisted that the eurogroup considered alternative solutions, but concluded that “many of the taxes we looked at would have touched the local people”.

And as reported at 8.35am, Dijsselbloem is adamant that the burden of a bank savings levy should fall on those with big deposits (who are arguable investors, not simply savers).

Reuters has full highlights of his appearance here.

Updated at 11.14am GMT

10.13am GMT

Stock markets fall

Europe’s stock markets are sliding this morning, following the ECB’s threat to withdraw support for Cyprus’s banks next week (see here onwards). The disappointingly weak PMI data (see 10.05am) has also driven shares lower:

FTSE 100: down 56 points at 6376, -0.87%

German DAX: down 66 points at 7935, – 0.8%

French CAC: down 39 points at 3789. -1%

Spanish IBEX: down 92 points at 8324, -1%

Italian FTSE MIB: down 92 points at 15924, -0.6%

The euro is also dropping, hitting a five-week low of 85.05p against the pound. It’s back below $1.29 against the US dollar too.

10.05am GMT

Eurozone downturn deepens; led by France

Europe’s economy was already weakening before the Cyprus crisis blew up, bleak economic data released this morning has shown.

Europe’s private sector is shrinking this month at a faster rate than in February, and rather quicker than analysts had expected.

Markit’s ‘flash composite PMI’, which measures services and manufacturing firms across the eurozone, fell to 46.5 this month, from 47.9 (any number below 50 means the sector contracted)

France’s economy looks particularly bleak, with its service sector PMI tumbling to a worryingly weak 41.9. That’s the lowest level since February 2009, and the dark days after the collapse of Lehman Brother.

And growth in Germany also slowed, with its composite PMI (services and manufacturing) falling to 51.0, from 53.3.

It suggests the eurozone recession is deepening .

Chris Williamson, Markit’s chief economist, warned that the data was pretty disappointing, with the Cyprus crisis probably already making the situation even worse:

Events that hit business confidence can have a very rapid effect on the data and so there is good reason to believe that responses we collect this week will on average be more negative.

Updated at 10.53am GMT

9.47am GMT

Meanwhile over in Moscow, Cypriot finance minister Michael Sarris says talks will continue with the Russian government.

He insisted negotiations were going well, telling Reuters:

The banks are the ultimate objective in any support we get, so it’ll either be a direct support to the banks or the support that we get through other sectors will be channelled to the banks, because this is our biggest challenge to recapitalise the banks.

Updated at 11.12am GMT

9.44am GMT

Key event

If the ECB does pull the plug then there could be turmoil in Cyprus next Tuesday, when the banks were scheduled to finally reopen.

And the deposit guarantee scheme which is meant to protect depositors in the event of a bank collapse could quickly be proved worthless.

As Frances Coppola (a former banker) has blogged about here, deposit guarantee schemes are only as good as the national government who stands behind them. And Cyprus does not appear to have the assets to hand to cover the first €100,000 deposits in its banking sector:

So, Coppola explains:

It is time that depositors were told the truth. The lack of a common deposit insurance scheme in the Eurozone means that deposit insurance is a luxury available only to those countries that can afford it – which are also the countries that least need it. Everywhere else, it is a sham.

Potentially awful news for Cypriots, as well as thousands of ex-pats from the UK and beyond.

More here: Sham guarantee

Updated at 2.46pm GMT

9.20am GMT

Some early reaction to the ECB’s threat to stop supporting Cyprus’s banks next week:

9.09am GMT

ECB gives Cyprus until Monday

BIG NEWS: The European Central Bank has announced that it has agreed to continue supplying emergency funding to Cyprus’s banks until next Monday.

But if the bailout hasn’t been agreed by then, the ECB would step away. It’s quite an ultimatum.

Here’s the statement:

The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013

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.

That sets Nicosia a clear deadline — find €6bn by next week, in a way that satisfies the IMF and the European Union, or your banks collapse.

8.55am GMT

Jeroen Dijsselbloem has taken responsibility for the fateful decision that Cyprus’s smaller savers with less than €100,000 in the bank should be taxed:

I take full responsibility, I’m the chairman [of the eurogroup].

Dijsselbloem then points out that the various parties in the room last Friday night/Saturday morning all had their own agenda, but that it was his job to steer the group towards a compromise that worked.

(our inside story of the negotiations has the background, btw)

8.47am GMT

8.41am GMT

Dijsselbloem: Systemic risk from Cyprus

Jeroen Dijsselbloem went on to warn:

[Cyprus] is definitely a systemic risk, and the unrest of the last couple of days have proved that, unfortunately.

He also cautioned that a new large Russian loan would not solve Cyprus’s problems:

Building up the debts of Cyprus does not help it towards a sustainable future.

(And if the International Monetary Fund isn’t convinced that Cyprus’s debts are sustainable, it would not support the bailout….)

8.35am GMT

Dijsselbloem: Plan B must be fairer

Jeroen Dijsselbloem, Dutch finance minister and head of the eurogroup, is discussing the Cyprus crisis at the European parliament now.

It’s being streamed live, here.

Dijsselbloem told MEPs that the eurogroup felt it was fairer that Cyprus’s €6bn contribution to its bailout and bank restructuring should come from its bank savers, particularly from “non residents with large deposits”.

He “strongly hopes” that the new package being drawn up in Cyprus offers a “more fair balance”.

UPDATE: Here’s the key quote:

The Eurogroup thinks it’s very important that we should have a fair burden share, and that means a larger contribution from large depositors than, of course, from small depositors.

Updated at 10.54am GMT

8.24am GMT

Key event

Over at Dialogue Russia-EU in Moscow, ,European Commission president Jose Manuel Barroso has said he is worried about the situation in Cyprus, but tried to sound positive:

I’m very concerned with the recent developments in Cyprus, mainly because of the consequences for the citizens of Cyprus.

We have in the past solved bigger problems. I hope that this time a solution can also be found.

The session is being streamed live on Russian TV, here.

8.05am GMT

Cyprus works on Plan B

Good morning, and welcome to our rolling coverage of the unfolding crisis in Cyprus.

The Cypriot government is racing to pull together a new plan today to secure its bailout package and prevent the collapse of its banking sector.

This “Plan B” has just been presented to party leaders this morning, and could possibly be voted on later today.

State TV have reported that the plan could include a levy on bank deposits over €100,000, after MPs dramatically rejected the original plan to tax smaller deposits on Tuesday night.

It could also potentially include a new loan from Russia, nationalising pension funds, or restructuring and selling off – or even closing down – parts of the banking sector.

However it is put together, Plan B must raise enough money to satisfy the International Monetary Fund, the ECB and the rest of the eurozone, and unlock Cyprus’s €10bn aid package.

But there are no easy answers in a game of brinksmanship that continues to spread concern across the eurozone, leaving the Cypriot people facing a deeply worrying future.

Meanwhile Cyprus’s finance minister, Michael Sarris, remains in Moscow negotiating with the Russian government. Sarris didn’t appear to make much progress yesterday, raising fears that his dash to Moscow was failing.

Speaking of Russia…European Commission president José Manuel Barroso is in Moscow today for “Dialogue Russia-EU”, and meetings with prime minister Dmitry Medvedev.

Medvedev was scathing about the crisis last night, particularly the plan to tax bank deposits, telling reporters that:

I cannot compare it to anything but some decisions made at a certain period of time by the Soviet authorities that did not care much about people’s savings.

Which should make for a lively meeting….

Updated at 11.15am GMT

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

In the broadcast today: What Does Cyprus Mean for the EUR Future? In light of the proposed bank deposits levy and its rejection by the parliament in Cyprus, we examine the impact of the recent events in the small island nation and explore how they could continue to dictate the future direction of the euro, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the bounce higher of the GBP vs USD, we continue to monitor the USD/JPY pair, we highlight the market’s reaction to the attempts to secure a new bailout for Cyprus, the statement by the European Central Bank, the Bank of England Meeting Minutes, and the U.K. Jobless Claims and Unemployment Rate, we discuss new forecasts from Bank of New York-Mellon and Commerzbank, and prepare for the trading session ahead.

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Cyprus in crisis meetings as levy on savers’ deposits fails to pass parliamentary vote. Church offers assets to help financial crisis. German Greens warn on Cyprus taking Russian help. ECB aid not available unless Cyprus banks become solvent…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Cyprus scrambles to secure new bailout” was written by Nick Fletcher, for guardian.co.uk on Wednesday 20th March 2013 15.43 UTC

3.43pm GMT

Here’s an interesting chart breaking down Cyprus bank deposits:

3.19pm GMT

More speculation:

Updated at 3.23pm GMT

3.12pm GMT

Interesting piece here from Euromoney earlier this month, talking about the prospect of depositors in Cyprus taking a hit, and the possibility of capital flight to avoid this…

3.04pm GMT

Eurozone consumer confidence improves

Eurozone consumer confidence edged up in March, it appears.

The European Commission said the index improved to -23.5 from -23.6 in February. Still negative though, and presumably taken before the latest blow-up in Cyprus.

2.57pm GMT

Bit more detail from Dow Jones on what Cyprus plan might involve:

Of course, if previous reports are true, the troika wants nothing to do with the proposals.

Updated at 3.01pm GMT

2.45pm GMT

Troika reportedly set to reject Cyprus’s new plan

But this alternative plan may not pass muster:

2.42pm GMT

Cyprus official says still working on alternative plans

If the Cyprus/Russia talks have ended for the day without resolution, there could still be some action on the island itself. AP reports:

A Cypriot financial official said authorities were working on bills which would need parliamentary approval aiming to limit the amount of money leaving the country, and that a decision would be announced later on how long the banks would remain closed. The official spoke on condition of anonymity as they were not authorized to release the information.

A government official said an alternative plan to raise the €5.8bn [orginally to have come from bank savings] had been drafted and was to be presented to the troika, most likely on Wednesday. The plan would raise money from domestic sources, including pension plans and subsidiaries of foreign banks active in Cyprus.

One of those domestic sources may be the country’s influential Orthodox church. Its head, Archbishop Chrysostomos II, said he would put the church’s assets at the country’s disposal, saying the church was willing to mortgage its assets to invest in government bonds.

2.33pm GMT

European Council President Herman Van Rompuy is speaking at the European parliament:

Updated at 2.35pm GMT

2.17pm GMT

Another direct consequence, along with shut banks and queues for ATMs, of Cyprus’s financial crisis:

Updated at 2.18pm GMT

2.07pm GMT

Cyprus deposit levy plan “Orwellian vision” says Pimco’s Bill Gross

Pimco’s Bill Gross, who runs the world’s largest bond fund, is far from impressed with what has been happening with the Cyprus bailout:

1.57pm GMT

Saris says Russian talks constructive but no concrete deal yet

Cyprus finance minister Michalis Sarris has admitted there were no concrete offers from Russia after his first day of talks in Moscow, but plans to stay until a deal is done. Miriam Elder, the Guardian’s Moscow correspondent, writes:

Sarris met his Russian counterpart, Anton Siluanov, before holding higher-level talks with Igor Shuvalov, a deputy prime minister and close ally of Vladimir Putin, the Russian president. The talks ended at about 4pm Moscow time and Sarris cancelled a planned press conference because of the lack of results.

Cyprus turned to Russia for a lifeline, seeking a five-year extension on a €2.5bn loan granted in December 2011 that is due to mature in 2016. It has also asked Russia to refinance the loan and lend an additional €5bn.

“We had a very good first meeting, very constructive, very honest discussion,” Sarris said after meeting Siluanov. “We’ve underscored how difficult the situation is.” However, he said there were “no offers, nothing concrete”.

Sarris said he would stay in Moscow until a deal was reached. “We’ll now continue our discussion to find the solution by which we hope we will be getting some support,” he said. Asked by reporters whether that meant simply renegotiating a loan, Sarris said: “No, we are looking at things beyond that.”

Full story here.

1.50pm GMT

There is much agreement that the Cyprus situation needs to be resolved quickly.

But perhaps there are different definitions of “quickly.” Some would take that to indicate today or maybe tomorrow. But perhaps not:

Because last weekend’s agreement worked out so well…

1.42pm GMT

Abandoning tough reforms not the answer, says ECB’s Asmussen

More from ECB board member Joerg Asmussen who warned about the (lack of) solvency of Cypriot banks earlier.

Speaking at conference he said abandoning the tough reforms and raising spending instead would not solve the debt crisis and would merely shift the problems to the future. He said:

It is an illusion to think that more debt is the answer to this debt crisis. Recent research has shown that high public debt levels in the euro area hamper growth, with a serious negative effect starting when debt exceeds 90% of GDP.

1.36pm GMT

Updated at 1.45pm GMT

1.07pm GMT

Cyprus so far today

Here’s a handy Reuters roundup of Cyprus developments so far today:

Cyprus pleaded for a new loan from Russia on Wednesday to avert a financial meltdown, after the island’s parliament rejected the terms of a bailout from the EU, raising the risk of default and a bank crash.

Cypriot Finance Minister Michael Sarris said he had not reached a deal at a first meeting with his Russian counterpart Anton Siluanov in Moscow, but talks there would continue.

Russia’s finance ministry said Nicosia had sought a further €5bn, on top of a five-year extension and lower interest on an existing €2.5bn loan.

Cyprus is seeking Moscow’s help after parliament voted down the euro zone’s plan for a €10bn bailout on Tuesday.

Cypriots balked at EU demands for a levy on bank deposits to raise €5.8bn, an unprecedented measure that opponents said would have violated the principle behind an EU-wide guarantee on deposits of up to €100,000.

Moscow has its own interests in ensuring the survival of banks in Cyprus, a haven for billions of euros squirreled abroad by Russian businesses and individuals.

The European Central Bank’s chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless the country took a bailout quickly.

“We can provide emergency liquidity only to solvent banks and… the solvency of Cypriot banks cannot be assumed if an aid program is not agreed on soon, which would allow for a quick recapitalization of the banking sector,” Asmussen told German weekly Die Zeit in an interview conducted on Tuesday evening.

Austrian Chancellor Werner Faymann said he could not rule out Cyprus leaving the eurozone, although he hoped its leaders would find a solution for it to stay.

Full story here.

Updated at 1.46pm GMT

1.00pm GMT

…this may not be completely implausible.

12.39pm GMT

French authorities search Christine Lagarde’s flat

Away from Cyprus and indeed the UK Budget, it seems French authorities have searched the Paris flat of IMF boss Christine Lagarde.

The move is part of an investigation into her handling of a 2008 compensation payment of €285m to businessman Bernard Tapie. There are claims that Lagarde, then finance minister, acted illegally in approving the payment. She denies any wrongdoing.

12.36pm GMT

UK Budget speech begins

A reminder that our live coverage of the UK Budget – George Osborne is now speaking – is here.

12.31pm GMT

Confusion over reported Cyprus bank sale

As mentioned BTL, there are reports that Cyprus Popular Bank has been sold to Russian investors, something which has gave a lift to markets and the euro.

However, in this atmosphere of speculation and rumour, it may not be correct:

Updated at 12.34pm GMT

12.17pm GMT

Deposit protection scheme should be respected, says Cameron

David Cameron repeated his promise that any Briton in Cyprus sent by the government (foreign office, ministry of defence etc) would not lose out in terms of their savings.

Nor would they be short of cash, thanks to the plane full of euros sent out to the island, he said at prime minister’s question time in response to Labour leader Ed Milliband.

As for the many thousands of British citizens in Cyprus, he said the government could not insure them against any losses in their Cyprus bandk accounts. But they would get the benefits and payments they were entitled to.

Asked how much the UK government knew and when, Cameron pointed out that the UK was not involved in the bailout discussions since it was not in the euro. Nor would it be contributing up to £1bn which it would otherwise have been liable to.

On the issue of bank trust – potentially damaged by any raid on savings – Cameron said:

We made it very clear to Cyprus… when you have a deposit protection scheme…[it] should be respected.

12.06pm GMT

There’s a bit of the blame game going on, it would appear.

The European Commission has said the weekend deal was unanimous and it felt it had to support the proposals even though it did not agree with all aspects of them (which, I do wonder? Could it be the hit to smaller depositors?)

Meanwhile there was this reported from the French:

Meanwhile EC vice president Olli Rehn will apparently not join President Jose Manuel Barroso’s mission to Russia but will instead stay in Brussels to deal with the Cyprus problem.

11.51am GMT

Cyprus Russia talks reportedly end

Reports are emerging that the talks between Cyprus and Russia have ended without a deal, and will continue tomorrow.

On the other hand:

11.30am GMT

It’s not just a gas deal Russia wants apparently:

11.27am GMT

Spain likely to change economic forecasts, says Rajoy

Spain is likely to change its economic forecasts, prime minister Mariano Rajoy said earlier.

In his weekly appearance in parliament he said (quotes from Reuters):

International organisations have changed their forecasts on a number of occasions and there are factors that, no doubt, will oblige us to do that… I believe we will change our forecasts.

The current prediction is for a 0.5% contraction in GDP but analysts believe this could be revised to 1.5% in April when Spain gives its new forecasts to Brussels.

11.19am GMT

A host of speculation is emerging about what Cyprus might actually plan in plan B:

Meanwhile:

And:

11.05am GMT

German and Portugal in successful bond sales

Staying with Germany, the country earlier sold €3.3bn of 10 year government bonds.

No surprise there was strong demand, given events elsewhere. The sale attracted 1.6 times the amount on offer, up from 1.2 times at a similar sale in February.

The average yield was 1.36%, the lowest at a 10 year auction since July 2012.

Meanwhile in Portugal, the country sold €1.5bn of Treasury bills, including €1.2bn of 18 month bills. The yield on these fell to 1.506% from 1.963% at a similar sale in January. Yields on the remaining €300m of three month bills edged up from 0.737% in February to 0.757%.

So not a bad result all round, under the circumstances.

10.58am GMT

Merkel regrets Cyprus vote decision and awaits new proposals

Angela Merkel regrets the outcome of last night’s vote in the Cypriot parliament, according to snaps on Reuters.

But the German chancellor accepts the decision and now awaits a proposal from the Cypriot government to the Troika. She will look at all the proposals the government makes.

Hammering home the point made by the ECB earlier, she said Cyprus does not have a sustainable banking sector.

Savers in Cyprus with more than €100,000 in the bank should be ready to contribute to any bailout (it was the plan to hit savers with more than €20,000 that scuppered the vote).

10.54am GMT

Cyprus banks update

No real surprise, I suppose, if true:

10.44am GMT

More thoughts on Russia’s possible involvement in easing Cyprus’s financial woes. Norman Villamin, chief investment officer for Europe at Coutts said:

Russia, with probably the greatest direct economic interest and social and historical connection to the island, is at this point a passive participant in plan to save Cyprus. The challenge will be to bring the Russians to the table and get them to share the burden.

Having displayed the stick (deposit levy) to get Russia to the table, the most obvious next step would be to dangle some carrots (such as offshore drilling rights) to facilitate a solution. This is not without precedent, as part of the Greek bailout programme included asset sales/privatisation.

The challenge is that this needs to be completed today, or authorities need to extend the bank holiday. With this in mind, it seems to me the Russians have a bit of an advantage in the negotiation. The only real pressure the troika could exert would be to cut off funding for the Cyprus central bank, which is reliant on the emergency liquidity assistance scheme (ELA). This would potentially raise the cost to Russia for not stepping in.

What are the near-term implications for asset markets? We have seen the euro push to recent lows, Spanish and Italian stocks sell off and yields on their government bonds rise (prices fall). Further downside from here requires a policy error, which though not impossible, I would be hesitant to suggest is the base-case scenario. Like flare-ups in the eurozone before, I believe a face-saving agreement will be found. It’s not likely to solve the broader crisis, but once again kick the can a bit further down the road.

10.31am GMT

No ECB liquidity without bailout, says Bank’s Asmussen

The statement from the European Central Bank following the Cyprus parliament’s rejection last night of a savings levy was not exactly clear about what it meant.

The ECB reaffirmed “its commitment to provide liquidity as needed within the existing rules”, but at Swordfish Research’s Gary Jenkins said earlier, these rules seem to be made up as they go along.

Now come some newspaper comments from ECB board member Joerg Asmussen, from Die Zeit via Reuters.

Asmussen said Cyprus’s banks were not solvent unless they were recapitalised quickly, and the ECB can only provide liquidity to solvent banks. He said:

We did not threaten (to cut off liquidity), but just pointed out as a matter of fact that we can provide emergency liquidity only to solvent banks and that the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector.

He was also quoted as saying that no other country in the eurozone had a banking sector crisis comparable to Cyprus.

Updated at 10.31am GMT

10.16am GMT

German Greens warn on Cyprus seeking Russian aid

Germany’s Green party is not happy at the idea of Russia helping to prop up Cyprus. According to Reuters, co-chair of the Greens Cem Oezdemir told German radio:

I would probably not have voted ‘no’ if I’d been in the southern Cypriot parliament because of the possible consequences and because I don’t think Cyprus should align itself with Russia.

We know this is not just about Russian money but Russia’s geostrategic interest in the island. It can’t be in the interests of Europe for it to have a foot in the door of an EU member state and thereby have an influence on the expansion of the European Union.

Oezdemir, of Turkish extraction, is clearly worried about the outlook for Turkey’s membership of the EU. He has proposed making a bailout for Cyprus conditional on reviving talks about reunification of the island, which has been divided since 1974.

10.08am GMT

Meeting at Cyprus central bank on Plan B

More on Cyprus’s Plan B discussions, courtesy of AP:

Government spokesman Christos Stylianides says a meeting was under way at the central bank to discuss a ‘Plan B’ for raising funds, but also for reducing the €5.8bn that must be found domestically.

Central Bank deputy governor Spyros Stavrinakis says no decision had been taken on when banks, which have been shut since the weekend, would reopen.

The new plan being worked on Wednesday has not yet been presented to the EU and International Monetary Fund, he said.

Updated at 10.28am GMT

10.01am GMT

Here’s some video from yesterday’s vote in Cyprus and the subsequent celebrations, as well as the church’s offer to support president Nicos Anastasiades.

9.35am GMT

Bank minutes and UK unemployment

Breaking news:

Members of the Bank of England’s monetary policy committee voted 9-0 to keep interest rates on hold.

They also voted 6-3 against more quantitative easing, with Mervyn King, Paul Fisher and David Miles wanting a further £25bn to take the total to £400bn.

Meanwhile UK unemployment figures showed a 1,500 fall in the claimant count to 1.542m, the lowest since June 2011. But the fall was less than the 5,000 drop expected by economists. The jobless rate was steady at 7.8%

9.28am GMT

George Osborne’s budget

For those interested in the UK chancellor’s set piece, my colleagues Graeme Wearden and Andrew Sparrow are providing full coverage of the budget on a live blog here.

Updated at 10.25am GMT

9.22am GMT

Markets calm as Cyprus talks continue

Time for a quick look at the markets, and the mood seems fairly calm so far.

Ahead of UK unemployment and Bank of England minutes, not to mention the budget, the FTSE 100 is up 0.32% at 6463. Germany’s Dax is up 0.55% while France’s Cac has climbed 0.6% and Italy’s FTSE MIB has added 0.44%. Spain’s Ibex is up 0.51%, while Athens is effectively unchanged.

Updated at 10.28am GMT

9.11am GMT

And here comes Plan B…whatever that might turn out to be.

Updated at 9.39am GMT

9.07am GMT

Russia’s role in the Cypriot financial crisis is one of the more intriguing aspects of the whole situation. With some €20bn of Russian money estimated to be in Cyprus bank accounts, you can see why Russia was unhappy about the prospect of any levy on deposits. But quite how the country will assist Cyprus is still unclear. Carsten Brzeski at ING Bank said:

There were several reports that Cyprus was trying to get financial support from Russia. Other options could be the increase of other taxes or privatisations. A combination of several options has recently been proposed by Russian energy giant Gazprom which according to media reports has offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus. Clearly an option with far-reaching geopolitical consequences.

8.53am GMT

Sarris says no loan deal with Russia yet but talks continue

Cyprus’s finance minister Michalis Sarris has said there has been no decision on a loan from Moscow yet but talks are continuing, according to Reuters.

Last night an idea circulating was that Russia would help out financially in return for some of the island’s energy rights.

Meanwhile Austrian finance minister Maria Fekter said the European Central Bank would not provide liquidity indefinitely to Cypriot banks. The banks, currently closed, are dependent on emergency funding from the ECB and last night it said:

The ECB takes note of the decision of the Cypriot parliament and is in contact with its troika partners

The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.

But Fekter told reporters (quotes from Reuters):

[If Cyprus does not come up with a new plan] then the banks won’t open on Friday because the ECB will not provide any more liquidity. That is a more horrible scenario than what is on the table now.

We will certainly help out the Cypriots but only under conditions that make sense. Certainly neither the ESM [bailout fund] nor the ECB can allow a bottomless pit.

Updated at 10.24am GMT

8.32am GMT

Church offers its assets to help Cyprus out of financial crisis

From the profane to the sacred. It seems everyone is pitching in to help Cyprus out of its crisis, with the church now offering its worldly goods. According to an AP report:

The head of Cyprus’ influential Orthodox church, Archbishop Chrysostomos II, says he will put the church’s assets at the country’s disposal to help pull it out of a financial crisis, after lawmakers rejected a plan to seize up to 10%t of people’s bank deposits to secure an international bailout.

Speaking after meeting President Nicos Anastasiades on Wednesday, Chrysostomos said the church was willing to mortgage its assets to invest in government bonds.

The church has considerable wealth, including property, stakes in a bank and a brewery. Tuesday’s rejection of the deposit tax has left the future of the country’s international bailout in question.

Updated at 10.25am GMT

8.22am GMT

And here’s Michael Hewson at CMC Markets:

The Cypriot MP’s obviously didn’t get the EU memo that states that you must vote yes, and if you don’t, you keep voting until you do.

The saga has now moved onto the next stage of what is turning into a high stakes game of Russian roulette, quite literally, as the Cypriot finance minister Sarris flies off to Moscow in the hope of some better terms, perhaps in exchange for gas exploration rights and future revenues given the fairly sizeable amount of Russian money (about €20bn) frozen in Cyprus’s banks. All the while Cyprus banks remain closed, probably until next week, while contingency plans for capital controls are being prepared for when they re-open to prevent a haemorrhaging of cash in the event a deal is done.

As things stand a deal with Russia may be the most likely option for Cyprus, unless the EU blinks and softens the terms of the deal, which could be a tough sell for the German parliament in particular in an election year. In the absence of a deal a number of Cyprus MP’s have said they will leave the euro.

8.18am GMT

The unprecedented attempt to seize savers’ cash as part of the bailout of Cyprus and the subsequent failure to get it through parliament has caused much comment. Here’s Gary Jenkins of Swordfish Research:

On Monday I said that I wouldn’t vote for the Cyprus bailout as initially proposed (at least I wouldn’t do so and remain in the country) and even though the proposal was amended to exempt all deposits under €20,000 it did not receive a single vote in favour. The ECB responded by confirming its commitment ‘to provide liquidity as needed within the existing rules,’ which of course they tend to make up as they go along. The Luxembourg Finance Minister Luc Frieden said that it was necessary that Eurozone finance ministers meet ‘as soon as possible’ to negotiate a new rescue package. One could argue that as they were the lot who negotiated the last one that maybe they should try and find someone else to do it for them.

He went on to say that: ‘What matters now is to undertake all necessary measures to ensure the stability of the Eurozone.’ Maybe they could think about some kind of deposit guarantee scheme, or even a banking union? Oh, wait a minute…

In an alternative universe the initial deal did protect all deposits under €100K, the bailout has been agreed and all is well with the (alternative) world. (By the way, Wales won the 6 Nations in this universe as well…).

But in this universe they have opened Pandora’s Box and we now know that deposit guarantee schemes are potentially worthless. Now here I must stop myself for a minute because of course such schemes are only of value when the sovereign is independently solvent. It’s not as if some friendly civil servant cycles up to your door the next morning with a suitcase containing your cash.

So what happens next? There are a myriad of potential outcomes which range from Cyprus raising money from elsewhere (Russia being the hot favourite), a renegotiation of the terms with the Eurozone all the way to a disorderly default and an exit from the Euro. At this stage any renegotiation would probably only be at the margins. Maybe the eurozone would make up the difference to allow deposits of, say under €50K to be protected.

From a Eurozone perspective a default and an exit would lead to some immediate volatility and some doubts about the solidity of the eurozone. Ironically however the biggest risk to the eurozone would probably be the medium term one of the ‘new’ Cyprus recovering economic wise quicker than the stressed countries remaining in the eurozone.

8.14am GMT

Today’s schedule

Aside from the many meetings in and concerning Cyprus, here are some of the other things to look out for today:

9.00 Eurozone current account

9:30 UK Bank of England Minutes

9.30 UK average earnings

9:30 UK unemployment

10:30 Germany to Sell €4bn 10-Year Notes

10:30 Portugal Holds Auctions for Three-, 18-Month Bills

10:30 Portugal to Sell 546-Day Bills

10:30 Portugal to Sell 91-Day Bills

12.30 UK Budget

15:00 Eurozone consumer confidence

18:00 US Federal Reserve rate decision and economic projections

18:30 Fed’s Bernanke Holds Press Conference in Washington

Updated at 10.47am GMT

8.03am GMT

Cyprus in crisis talks as savings levy rejected

Good morning and welcome back to our rolling coverage of the latest developments from Cyprus and the rest of the eurozone and beyond.

The Mediterranean island is in the spotlight after Tuesday’s rejection by its parliament of the controversial levy on savers’ deposits. Finance minister Michalis Sarris – who tendered his resignation only to have it rejected by the island’s president Nicos Anastasiades – is in Russia for talks to drum up financial help.

It has asked Russia for a five year extension of an existing loan of €2.5bn and a reduction in the 4.5% interest rate.

Sarris told reporters in Moscow, according to Reuters:

We’re hoping for a good outcome but we cannot really predict.

The president, who let’s not forget is barely a month into the job, is holding a meeting with party leaders and the governor of the central bank. He is also due to hold a cabinet meeting as well as talks with officials from the Troika – the EU, European Central Bank and International Monetary Fund.

The country is desperately trying to fill a €5.8bn gap now the savings levy has been voted down. Banks remain closed, but may or may not open on Thursday. There have been suggestions that – given next Monday is a bank holiday – things may remain closed until at least next Tuesday.

Details of yesterday’s developments are in our story here.

Meanwhile there is a busy day ahead elsewhere, not least for the UK with the Bank of England minutes, unemployment and the Chancellor’s setpiece, the Budget.

Updated at 8.54am GMT

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