Greek Cypriot president's disastrous first EU summit ended with a €5.8bn bill for savers as troika demanded payback
Exactly a fortnight after being sworn in as the new president of Greek Cyprus, Nicos Anastasiades set out for Brussels last Thursday for his first exposure to European Union summitry.
For months the divided island, whose offshore business attractions have left local bank deposits about four times bigger than the national economy, has been on the eurozone sickbed fearfully awaiting the treatment administered by the hated "troika" – the International Monetary Fund, the European Commission, and the European Central Bank– as the currency zone's fifth bailout candidate.
As well as the full EU summit on Thursday and Friday, Anastasiades, a London-educated 66-year-old, was to attend the first full eurozone summit for 14 months late on Thursday.
A senior EU policymaker said: "There will be a little discussion of Cyprus, but no decisions."
A senior EU diplomat predicted: "Nothing much will happen. It's the new president's first summit."
As it turned out, the centre-right Cypriot leader was given a 12-hour stay of execution until the early hours of Saturday on what, highly conveniently, was a Cyprus bank holiday weekend. He went home with a €10bn euro bailout and a eurozone taboo-busting obligation to expropriate every saver in every bank in Cyprus.
Cypriot participants describe the experience of those two days with rancour as chastening and brutal, an unforgettably unhappy debut on the European stage.
"It was clear blackmail. We were told either you accept this or on Tuesday your banks will not open," said George Sklavos, a senior Cypriot finance ministry official present at the meetings.
By the time he got home to Nicosia on Saturday, Anastasiades was preparing to go on national television to announce the worst moment in his country since the Turks invaded in 1974 and forced a partition that continues to this day. Announcing that Cypriot savers would have their nest-eggs docked to co-finance the bailout, he was also going back on a campaign pledge that helped him get elected. He blamed the usual suspects in the "troika" – officials whose diktats on struggling eurozone economies determine their bailout prospects.
It was not the two-day summit that decided to confiscate savers' money for the first time in more than three years of currency, banking and sovereign debt crisis. Rather, the Dutch finance minister Jeroen Dijsselbloem called an emergency session of the eurogroup in the same drab building in Brussels to kick off on Friday just as the leaders were heading for the airport.
As the summit ended, but before the eurogroup started, the senior policymaker confirmed that the Cyprus bailout would indeed be €10bn, leaving a further €7bn to be found.
The eurogroup comprises the 17 finance ministers of the currency zone plus the European Central Bank, the relevant EU commissioner, Olli Rehn, and — where bailouts are concerned — the IMF. The key players were Wolfgang Schaeuble, the German finance minister, his former deputy, Jörg Asmussen, from the ECB, Christine Lagarde of France for the IMF, and Finland's Rehn from the commission.
Anastasiades lingered in the building, but did not take part in the meeting which began at 4.30pm on Friday and ended with a bombshell — under the terms of the bailout he would need to find €5.8bn by raiding bank accounts.
Sklavos said the goalposts kept shifting. His boss, the finance minister Michalis Sarris, was first told the Cypriots had to find €2bn from taxing savers. That was doable. However, "At around 7.30pm they asked us for €5.8bn. The atmosphere was not pleasant," he said. "A few countries like Luxembourg supported us and we got help from Olli Rehn. Other than that no one came to our defence.
"It was our worst nightmare. At the end of the day it was a simple: 'take it or leave it on the table'."
Various formulas and calculations were kicked around, with the Germans and the IMF demanding much bigger taxes on savers' deposits, the commission seeking modest contributions from savers with less than €100,000 and Anastasiades said to be keener on spreading the burden, fearful of scaring off the wealthy Russians with too punitive levies. They use Cyprus as a holiday, property, and banking paradise.
Anastasiades balked at anything over 10% for the wealthy, said EU sources, and settled on the symbolic figure of a 9.9% "tax" on depositors with more than €100,000. That meant the rest of the €5.8bn had to come from the more modest savers, at a one-off rate of 6.75%.
By Monday, with Anastasiades unable to muster parliamentary support to pass the shock legislation, it appeared the equation would be changed to benefit small savers. German, French, and ECB policymakers said they did not care how the money was raised, as long as the €5.8bn figure was guaranteed.
The IMF has long insisted on keeping the cost of the bailout well below the €17bn needed because of its fixation on ensuring medium-term debt sustainability. Lending Cyprus what it needed would have tipped the scales of sustainability.
The German government, months away from a crucial general election, was also very reluctant to see its taxpayers' money lent to secure the savings of wealthy Russians whose deposits are estimated to represent almost a third of Cypriot accounts.
The panic about banks closing down on Tuesday came from Asmussen, who warned the Cypriots that no deal meant no emergency liquidity help from the ECB, meaning the two biggest banks on the island could collapse.
"I was present," said Sklavos. Asked who pushed the hardest for the levy to be slapped on depositors, he said: "Wolfgang Schaeuble."
"It was a fait accompli. They had made their decision before the meeting had even begun. They don't care. They want Cyprus to be the guinea pig. They want to see if this thing works. If it does, then perhaps Spain or Italy will be next. If it doesn't, then who cares about Cyprus?"
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