European Union

Data for April shows contraction in Germany’s business activity, with prospects for service sector ‘increasingly gloomy’. The services purchasing managers index fell to 49.6 last month from 50.9 in March– the first contraction since November…

 


Powered by Guardian.co.ukThis article titled “Eurozone recession set to deepen as private sector shrinks for 15th month” was written by Rupert Neate, for The Guardian on Monday 6th May 2013 13.53 UTC

The eurozone's private sector shrank for the 15th consecutive month in April – suggesting the single currency area will fall deeper into recession.

Germany, the powerhouse of the eurozone, also suffered a contraction in business activity during the month, which could send a worrying signal for the rest of the bloc.

An official indication of eurozone GDP is due next week and on Monday the president of the European Central Bank, Mario Draghi, stressed that the policymakers would be ready to cut rates again after taking a quarter of a percentage point off the benchmark rate to a record low of 0.5% last week.

"We stand ready to act again," Draghi said in remarks that knocked the euro lower. Wall Street, meanwhile, remained close to last week's record highs.

Tim Moore, a senior economist at Markit, said prospects for Germany's service sector were increasingly gloomy. "A renewed slide in services output during April, alongside falling manufacturing production, raises the risk that the German economy will fail to expand over the second quarter," he said.

Data gauging the level of activity across thousands of companies and regarded as a good indicator of general economic conditions came in below the crucial level of 50, which separates contraction from expansion. At 46.9 in April, Markit's eurozone composite purchasing manager's index (PMI) was an improvement on initial readings of 46.5 and March's output of 46.5 but it has been below 50 for more than a year.

Germany's PMI, which measures growth in manufacturing and services and accounts for more than two-third's of Germany's GDP, fell to 49.2.

Germany's economy performed well during the first two years of the eurozone crisis, but growth slowed last year as it was knocked by the slowdown in China. The services sector fell to 49.6 last month from 50.9 in March – the first contraction since November. Germany's wobble is likely to drag the whole of the eurozone deeper into recession, Markit warned. "The eurozone's economic downturn is likely to have gathered momentum again in the second quarter," Chris Williamson, its chief economist, said. "The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4%-0.5% in April."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The latest data and survey evidence fuel concern that the eurozone is headed for further GDP contraction in the second quarter after highly likely suffering a sixth successive quarter of contraction in the first quarter of 2013."

The European commission last week warned that it expects the eurozone's GDP to shrink by 0.4% in 2013, an increase on the 0.3% it had previously forecast. The recovery pencilled in for 2014 will also be slower than expected and the unemployment crisis in the eurozone will persist, the commission said in its spring forecasts.

ECB executive board member Benoît Cœuré had also indicated that the central bank would be ready to cut interest rates further if the economic outlook in the euro area worsens. "It's a historic low and we'll cut again if indicators confirm the situation is deteriorating," Cœuré said in an interview with France Inter radio station on Monday.

Williamson said it was difficult to believe that a mere 25 basis point cut from an already low level will have "a material impact on an economy that is contracting so sharply".

In further gloomy news, a separate EU report published on Monday showed retail sales across the eurozone dropped 0.1% in March following a 0.2% fall in February.

There were also fears that the service sector is slashing prices to drum up business. Official figures released last week showed prices across the region rose 1.2% in April – well below the central bank's 2% target – while unemployment hit a new high of 12.1%.

An index that measures sentiment in the eurozone improved, but illustrated concerns about Germany. "While investors' assessments of the economy for the eurozone are stabilising, those for Germany are clouding a little, albeit at a significantly higher level," research group Sentix said.

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USA 

It is time for the European Central Bank to show its independence and act in the interests of all eurozone citizens– not just Angela Merkel’s, writes The Guardian’s economics editor Larry Elliott.  A different approach is needed to save the eurozone…

 


Powered by Guardian.co.ukThis article titled “European Central Bank must heed eurozone warning signs” was written by Larry Elliott, economics editor, for The Guardian on Tuesday 30th April 2013 12.57 UTC

The warning signs are flashing red for the eurozone. Inflation is plunging, unemployment is rising and activity is weakening across the board. Unless Europe wants to become the next Japan, mired in permanent deflation and depression, action is needed now.

Stage one of the process should be a cut in interest rates from the European Central Bank (ECB) when it meets in Bratislava on Thursday. The latest inflation figures show the annual increase in the cost of living across the 17-nation single-currency area fell from 1.7% to 1.2%, its lowest in three years and well below the ECB's 2% ceiling. Even Jens Weidmann, the ultra-hawkish president of Germany's Bundesbank, would be hard pressed to say there is a threat to price stability.

It's not hard to see why inflationary pressure is abating: the eurozone economy has been flat on its back for the past 18 months. Unemployment rose by 62,000 in March, taking the eurozone jobless rate to yet another record high of 12.1%. Spain and Greece remain the weak spots, but even in Germany labour market conditions are becoming more difficult. Across the eurozone, almost one in four young people are out of work.

Why is unemployment rising? Again, you don't have to be John Maynard Keynes to figure it out. Europe's banking system is bust, there is a shortage of credit, real incomes are under pressure and the deficiency of demand is being exacerbated by austerity overkill. Retail sales figures from Greece show that in February spending was more than 14% lower than a year earlier.

The malaise is spreading from the eurozone's periphery to its core. It will be mid-May before the official growth data for the first quarter of 2013 is published, but the early evidence from Spain, where GDP fell by 0.5%, is not encouraging. Judging by the grim forward-looking surveys of business and consumer confidence, the second quarter will suffer more of the same.

Monetary policy works only with a lag, so whatever the ECB does on Thursday will be too late to prevent the recession deepening. Angela Merkel has made it clear that she does not want to see a cut in the cost of borrowing, but it is time for the ECB to show its independence and act in the interests of all eurozone citizens, not just the one seeking re-election in the German polls this autumn.

In itself, a quarter-point cut in interest rates to 0.5% would do little to revive demand, ease the credit crunch or create jobs. Instead, it should be part of a three-pronged approach to boost growth. The cut in rates should be accompanied by an ECB announcement that it is willing to embrace the unconventional methods deployed by the Federal Reserve, the Bank of England and Japan to underpin activity. It should also be the catalyst for a less aggressive approach to cutting budget deficits, with countries given more time to bring their deficits below the eurozone ceiling of 3% of GDP.

For the past three years, macroeconomic policy in the eurozone has been run on sadomasochistic principles: that only regular doses of pain will ensure countries stick to strict reform programmes.

The upshot of this policy is clear for all to see. Businesses that are starved of credit are mothballing investment and cutting their workforce. Weaker growth means higher-than-expected budget deficits. Permanent austerity has bred social dislocation and political extremism. A different approach is needed to save the eurozone from catastrophe – starting on Thursday.

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Frankfurt professor’s concerns echo recent alarms being sounded across Europe over Berlin’s stance on EU fiscal policy. A leaked policy paper from France was redolent with fear of and hostility to Merkel and her prescriptions in the euro crisis…

 


Powered by Guardian.co.ukThis article titled “German role in steering euro crisis could lead to disaster, warns expert” was written by Ian Traynor in Leuven, for theguardian.com on Sunday 28th April 2013 14.37 UTC

One of Germany's most influential political thinkers has delivered a stark warning that its post-second world war liberal democracy cannot be taken for granted and its dominant role in managing Europe's debt crisis could lead to disaster.

Jürgen Habermas, the Frankfurt professor whose political thinking has helped shape Germany over the past 50 years, called for the EU to be turned into a supranational democracy and the eurozone to become a fully fledged political union, while lambasting the "technocratic" handling of the crisis by Brussels and European leaders.

In his first big speech on the euro crisis, delivered at Leuven University, east of Brussels, Habermas called for a revival of Europe's doomed constitutional ambitions, arguing that the disconnect between what needed to be done in economic policy and what was deemed to be politically feasible for voters was one of the biggest perils facing the continent. "Postponing democracy is rather a dangerous move," he said.

At 83, Habermas has long been revered as a guru and mentor to the post-1968 generation of centre-left German politicians. He is a champion of a democratically underpinned European federation, and has reserved some of his most trenchant criticism for Berlin's role in the three-year crisis.

"The German government holds the key to the fate of the European Union in its hands. The main question is whether Germany is not only in a position to take the initiative, but also whether it could have an interest in doing so," he said.

"The leadership role that falls to Germany today is not only awakening historical ghosts all around us, but also tempts us to choose a unilateral national course or even to succumb to power fantasies of a 'German Europe'.

Euro coins and banknotes
Habermas says the EU elite’s response to the currency crisis has been to construct a technocracy without democratic roots. Photograph: Reuters

"We Germans should have learned from the catastrophes of the first half of the 20th century that it is in our national interest to avoid permanently the dilemma of a semi-hegemonic status that can hardly hold up without sliding into conflicts."

Habermas's wakeup call came at the end of a week of similar alarms being sounded on both sides of the country's borders. The Polish prime minister, Donald Tusk, in the presence of the German chancellor, Angela Merkel, in Berlin last week, said there were worries about German domination of the EU "everywhere, without exception".

A leaked draft policy paper from France's governing socialist party on Friday was redolent with fear of and hostility to Merkel and her policy prescriptions in the euro crisis.

Habermas demanded a sea change in German policy, away from insisting on "stabilising" the budgets of vulnerable eurozone countries by slashing social security systems and public services, to a policy of "solidarity" entailing common eurozone liability, mutualised debt, and euro bonds.

He located Germany's traditional EU enthusiasm in the post-Nazi quest for international rehabilitation through reconciliation with France and driving European unification processes, all occurring under the protection and promotion of the US in cold-war western Europe until the Soviet collapse in 1989.

Habermas said: "The German population at large could develop a liberal self-understanding for the first time. This arduous transformation of a political mentality cannot be taken for granted … Germany not only has an interest in a policy of solidarity, it has even a corresponding normative obligation … What is required is a co-operative effort from a shared political perspective to promote growth and competitiveness in the eurozone as a whole."

Such an effort would require Germany and several other countries to accept short- and medium-term redistribution in its long-term interest, he added, "a classic example of solidarity".

The structural imbalances between the economies of greatly divergent eurozone countries at the root of the crisis were certain to worsen under the policies being pursued, Habermas argued, because governments were making decisions "exclusively from [their] own national perspective. Until now, the German government has clung steadfastly to this dogma".

He said the EU elite's response to the crisis had been to construct a "technocracy without democratic roots", trapping Europe in a dilemma of legitimacy and accountability, between "the economic policies required to preserve the euro and, on the other, the political steps to closer integration. The steps that are necessary are unpopular and meet with spontaneous popular resistance".

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Analysts say cut is imminent as German manufacturing contracts for first time in five months. The European Central Bank is poised to reduce the base rate from 0.75% after months of bleak figures from across the single currency zone…

 


Powered by Guardian.co.ukThis article titled “ECB could cut interest rates after German output falls” was written by Phillip Inman, for The Guardian on Tuesday 23rd April 2013 20.16 UTC

Weaker than forecast factory output in Germany and China sent the oil price below 0 on Tuesday and raised expectations that the European Central Bank will cut interest rates at its monthly meeting next month.

German manufacturing contracted for the first time in five months while France, Italy and Spain suffered steep cutbacks in output. China maintained its recent upturn in output, though at a slower pace. Data from the US also showed a slowdown at its factories in April.

The ECB is poised to reduce the base rate from 0.75% after months of bleak figures from across the single currency zone. Analysts said a rate cut was imminent after Jens Weidmann, head of Germany's central bank, conceded that lower interest rates would be considered should there be a worsening in the economic data.

The prospect of cheaper funds from the ECB sent stock markets soaring. The FTSE 100 shrugged off the poor manufacturing figures to climb 125 points to 6406 while the Paris CAC finished the day up 3.6% at 3783.

The gloomy state of the eurozone economies, which has surprised officials in Brussels, is likely to continue through the summer months, said analysts.

The European Commission and the ECB had previously forecast a recovery in the second half of the year as a crisis that has forced Greece, Ireland, Portugal and Cyprus to apply for bailouts appeared to be receding.

But northern Europe has increasingly suffered as austerity cuts in the south hit their exports.

Christoph Weil, economist at Commerzbank, said it was likely the ECB will reduce interest rates to 0.5%, in line with the Bank of England.

"Investors are convinced the ECB will do whatever it takes to prevent a breakup of the monetary union. However, the central bank cannot solve the structural problems in the crisis countries with the printing press.

"For this reason the economic outlook for these countries remains rather gloomy. And the impact is felt not only by companies in the crisis countries. The lack of demand from the periphery is affecting also the core countries. As long as there is no marked improvement in sales prospects, even the low interest rates are unlikely to induce companies to invest more," he said.

The US manufacturing sector also slowed, growing at its slowest pace in six months during April following a downturn in the domestic market. Markit's US manufacturing purchasing managers' index (PMI) fell to 52 from 54.6, remaining just above the 50 level that marks the line between growth and contraction.

Chris Williamson, chief economist at Markit, said the findings suggested output growth was slowing sharply in the second quarter.

"While this week's first quarter GDP numbers may… bring some brighter news on the economy, the picture looks to have already begun to darken again, with GDP growth set to weaken in the second quarter."

The US data "will obviously add significantly to concerns, most recently related to the softer China and German data, that another seasonal slowdown in the global economy is taking hold," said Alan Ruskin, Deutsche Bank's head of G10 currency strategy.

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Europe could have dealt with Cyprus cheaply and painlessly with a pan-European body able to recapitalize the country’s banks. Next could be Malta and Slovenia where the government is already making contingency plans for coping with bank losses…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis demands one banking policy, one fiscal policy – and one voice” was written by Larry Elliott, economics editor, for The Guardian on Monday 1st April 2013 13.24 UTC

It had all started to look quite promising. The US was picking up, China had avoided a hard landing and in Japan the early signs from the new government's anti-deflation approach were encouraging. Even in Britain, the first couple of months of 2013 provided some tentative hope – from the housing market and consumer spending, mainly – that the economy might escape another year of stagnation.

Then Cyprus came along. The last two weeks of March brought the crisis in the eurozone back into the spotlight, and by the end of the month the story was no longer rising share prices on Wall Street on the back of strong corporate profitability or the better prospects for Japanese growth. It was, simply, which country in the eurozone would be the next to require a bailout.

The past few days has seen what Nick Parsons, head of strategy at National Australia Bank, has called the "reverse Spartacus" effect after the scene at the end of Stanley Kubrick's epic in which captured slaves are offered clemency if they identify the rebel leader. All refuse.

In the aftermath of Cyprus, it has been a case of "I'm not Spartacus". Four members of the eurozone felt the need to issue statements explaining why they were different from the troubled island in the eastern Med. We now know that Portugal is not Spartacus, Greece is not Spartacus, Malta is not Spartacus and Luxembourg, which has the highest ratio of bank deposits to GDP in the eurozone, is not Spartacus. As Parsons noted wryly, Italy was unable to say it was not Spartacus because it still doesn't have a government to speak on its behalf. Otherwise it would probably have done so.

Few of the independent voices in the financial markets take such attempts at reassurance seriously. Another crisis in the eurozone could be avoided, but only if those in charge (sic) act more speedily and effectively than they have in the past. As things stand, another outbreak of trouble looks inevitable.

Cyprus has enough money to get by for a couple of months, but by then will be feeling the impact of a slow-motion bank run as depositors remove their money at the rate of €300 (£250) a day. The economy has been crippled by the terms of the bailout, a Carthaginian peace if ever there was one, and the country's debt ratio is bound to explode.

Investors are already casting a wary eye over Malta, which appears to have been the short-term beneficiary of capital flight from Cyprus, but the bookies favourite for the next country to need a bailout is Slovenia, where the government is already making contingency plans for coping with bank losses.

By focusing on the eurozone's minnows, the markets are in danger of overlooking a much bigger potential problem. If attempts to put together a new government in Rome fail, Italy will be facing a second general election and in such a scenario opinion polls currently put Silvio Berlusconi ahead.

It is not hard to sketch out a sequence of events in which Berlusconi completes a political comeback, the markets take fright, Italian bond yields go through the roof, the European Central Bank (ECB) under Mario Draghi says it will only buy Italian debt if Berlusconi agrees to a package of austerity and structural reforms, the new government refuses and then calls a referendum on Italy's membership of the single currency. Italy has already had six consecutive quarters of falling GDP and is on course for a seventh, making the recession the longest since modern records began in 1960. So when Berlusconi says he cannot let the country fall into a "recessive spiral without end", he strikes a chord.

If policymakers are alive to the threat posed by one of the six founder members of the European Economic Community back in 1957, they have yet to show it. The assumptions seem to be that Cyprus is exceptional, that the ECB will ride to the rescue if it proves not to be, and that Europe will be dragged out of the danger zone by the pick-up in the rest of the global economy.

This is the height of foolishness. The factors causing the crisis in Cyprus are replicated in many other member states. The ECB's "big bazooka" – buying the bonds of struggling governments without limit – has yet to be tested, and because Europe is the world's biggest market, the likelihood is that the re-emergence of the sovereign debt crisis will seriously impair growth prospects in North America and Asia.

Economists at Fathom Consulting draw a comparison between the eurozone today and the UK at the very start of the financial crisis. Mistakes were made with the handling of Northern Rock because of fears that a bailout would create problems of moral hazard – in other words helping a bank that had got itself into trouble through its own stupidity would encourage bad behaviour by others. The systemic risks were not recognised, with disastrous consequences.

Similarly, the eurozone has not understood the systemic potential of the current crisis, Fathom argues, not least the "doom loop" between fragile banks and indebted governments. Austerity is making matters worse because cuts to public spending and higher taxes hit economic activity by more than they reduce government deficits. Public debt as a share of national incomes goes up, not down.

Austerity can work, but conditions have to be right for it. It helps if a country's trading partners are growing robustly, because then the squeeze on domestic demand can be offset by rising exports. It helps if the central bank can compensate for tighter fiscal policy by easing monetary policy, either through lower interest rates or through unconventional measures such as quantitative easing (QE). And it helps if the exchange rate can fall. Not one of these conditions applies in the eurozone, which is why the fiscal multipliers – the impact of tax and spending policies on growth – are so high. Put bluntly, removing one euro of demand through austerity leads to the loss of more than one euro in GDP.

So what should be done? Clearly, the self-defeating nature of current policy needs to be recognised. Countries need to be given more time to put their public finances in order. The emphasis should be shifted from headline budget deficits to structural deficits so that some account is taken of the state of the economic cycle, and the ECB needs to be ready with its own version of QE.

Simultaneously, work needs to speed up on creating a banking and fiscal union. Europe could have dealt with Cyprus cheaply and painlessly had there been a pan-European body capable of recapitalising the country's banks. Delay in setting up such a body threatens to be costly.

Finally, the eurozone needs to start talking with one voice. A bit of "I'm Spartacus" would not go amiss.

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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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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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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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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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