Bailout tension rises as panicked politicians warn island could be just weeks away from running out of money
The clock is ticking on Cyprus, where the government calculates it is only a matter of weeks before the Mediterranean island runs out of money.
Highlighting the tiny nation's overnight transition from prosperity to penury, panic-stricken officials have said it is imperative a controversial €10bn bailout is approved by EU parliaments and sealed with international lenders by 24 April.
If an agreement fails to be reached by then – and bailout funds are not there to replenish dried up coffers – President Nicos Anastasiades' administration will face the daunting prospect of being unable to pay state salaries and pensions.
MPs were brought face-to-face with the stark reality of the country going bust when the government's accountant general, Rea Georgiou, admitted an €80m shortfall in state funding – far higher than previously estimated by the previous communist-led government. "The cash deficit for April is €160m. The €85m in reserve is not enough and we need a similar amount to avoid a default," she told parliament.
In echoes of the crisis that has long engulfed Greece, Nicosia's new finance minister, Harris Georgiadis, insisted it was vital that internationally mandated structural reforms were passed. Barely a week into the job, he said the 56-member Cypriot House would have to ratify the measures, including tax increases and spending cuts, in the coming days so a first tranche of aid could be disbursed.
"We are currently at a borderline point," the politician told reporters Monday as a parliamentary economics committee began an inquiry into the handling of the crisis and why Cyprus had been brought to the brink of bankruptcy.
Although the island – in a first for any eurozone member – agreed, under unprecedented German pressure, to "bail in" bank depositors as part of the rescue, in addition to winding down its second-largest lender and radically restructuring its banking sector, the IMF has not fully consented to participating in the programme.
Final approval from the Washington-based body, which in principle will contribute €1bn of the total amount, is expected in May.
The euro group of single currency finance ministers are due to begin the ratification process when they meet in Dublin on Friday.
Depositors were told this week that they must also wait an agonising two to three months before learning the full extent of the enforced losses they have been called to suffer as a result of the bailout.
Well-briefed sources have been widely quoted as saying the haircut on uninsured deposits of more than 100,000 euro at the Bank of Cyprus, the island's largest commercial lender, is unlikely to be less than 50%.
"The extra time is needed to assess assets belonging to the Bank of Cyprus and, as such, its recapitalisation needs," said former central bank governor, Afxentis Afxentiou. "But please quote me as also saying that the way Cyprus has been treated is totally unfair. There has been absolutely no EU solidarity in our case," he told the Guardian. "A lot of ordinary people with life savings stand to be effected."
Greek Cypriot banks saw €4.5bn in deposits – the equivalent of 25% of GDP – wiped out virtually overnight when Greece's monumental debt load, in another one-off move, was restructured last year.
Rumours of a haircut on bank accounts held in local co-operatives sparked a mini-run on the financial institutions last week.
With the sheer scale of the losses sinking in – and anger at the perceived inequity of the deal also mounting – there is growing debate as to whether the EU's most easterly member would be better off leaving the bloc.
Local fury intensified on Tuesday when it was revealed in parliament that tens of millions of euros in cash had been withdrawn from Cypriot banks in the weeks running up to the bailout.
Capital controls, implemented to stop money flooding out of the island, has helped energise calls for a return to the Cyprus pound.
Indicative of the climate, Stavros Malas, who ran for president with the support of the Akel anti-austerity communist party in elections six weeks ago, refused to rule out Nicosia exiting the euro.
"It's one thing to be pro-European, another a masochist," he told Athens' leftwing daily Efimerida twn Syntakton. "Given that the economic crisis in Cyprus will be prolonged, I am absolutely sure that voices will multiply for [the island] to exit the eurozone. And perhaps we would be better off studying this scenario, at least from a macroeconomic point of view."
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