Search for a Solution: Troika Reportedly Rejects Plan B in Cyprus

March 25th, 2013

Published on Spiegel Online International, March 22, 2013.

Greek media outlets reported early Friday afternoon that an alternative bailout package proposed by Cyprus has been rejected by the troika. “The coming hours will determine the country’s future,” a government spokesman in Nicosia said … //

… Fears of Run on Banks:  

Across Europe, concerns are growing that the impasse could lead to a run on banks and possible bankruptcy for the Mediterranean country. Germany’s respected business daily Handelsblatt is reporting that the European Central Bank (ECB) is preparing to take steps to prevent a run on the banks in Cyprus and a massive capital flight from the country. According to the report, the ECB is considering placing limits on the amount of money residents can withdraw from ATM machines. The rules would also entail freezing deposits on accounts and requiring that any wiring of money be pre-approved by the national central bank. Handelsblatt said the ECB had not determined how long such a freeze on accounts would be put in place.

The newspaper said that the Cypriot government had similar plans and that parliament would likely approve a freeze on accounts and other measures to prevent capital flight on Friday. In the history of the European Union, only two banks have ever limited money transfers — Belgium’s Dexia and Britain’s Northern Rock, both at the height of the global financial crisis.

Banks in Cyprus have been closed since Saturday in order to prevent a run on the banks, although money has been available in ATM machines for customers. Under current plans, they are scheduled to reopen next week. Without a bailout package and without liquidity from the ECB, several banks will likely go bankrupt. On Thursday, the ECB threatened to suspend liquidity aid on Monday if a bailout agreement hasn’t been reached by then.

According to the report, the ECB also wants to regulate capital flows even if Cyprus comes to an agreement with the troika over the terms of a bailout early next week. “The is a great danger there will be a run on the banks when they reopen next week,” an ECB source told the newspaper. The paper said the ECB plans to implement the controls in a way that will ensure that all citizens of Cyprus are given access to the money they need to live and that payments of pensions and other social services will continue.

Handelsblatt notes that the Lisbon Treaty governing the EU includes provisions allowing limits on the free flow of capital across the bloc. Limits in the interest of “public security” are permitted, it notes, and a country doesn’t even require permission from Brussels to implement them.
(full text).

Links:

Iron Chancellor Returns: Merkel Can’t Contain Anger over Cyprus, on Spiegel Online International, by Severin Weiland and Philipp Wittrock, March 22, 2013: Angela Merkel is known for her measured approach to even the most controversial issues. The crisis in Cyprus, however, has enraged the German chancellor. In parliamentary meetings on Friday morning, she did little to disguise her fury – though she shoulders some of the blame herself …;

die neusten Videos von WissensmanufakturNET;

Corruption, on HBB Blog, by HBB, Sept. 17, 2011.

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