The Cyprus Mail 28/02/13
DISY said yesterday that statements made by a European
Central Bank policymaker not ruling out a haircut of bigger depositors
in Cypriot banks, only served to undermine the credibility of the
eurozone.
Reuters yesterday reported ECB policymaker Benoit Coeure
as saying that depositors in Cypriot banks should not be forced to take
losses across the board as part of a eurozone rescue of Cyprus, but he
did not rule out making the biggest depositors share some of the
burden.
Speaking at a Reuters Summit on the future of the
eurozone, Coeure said it was essential to ensure that Cypriot debt was
reduced to a manageable level and that the cost of the bailout was
fairly shared and not just footed by taxpayers.
Germany, Finland
and some other eurozone countries are pushing for bank depositors and
other investors in Cyprus to carry some of costs of a bailout, both to
shield their taxpayers and because of suspicions that wealthy Russians
and others have used the island to stash possibly illicit funds.
Opponents
of such a move are concerned it could trigger a bank run and further
undermine trust in the eurozone, rekindling the worst of the debt
crisis.
In a statement yesterday responding to the reports, DISY
repeated categorically Cyprus’ stance that there would be no haircut on
deposits.
Eurozone finance ministers will discuss the package for
Cyprus at a meeting in Brussels on Monday, with Germany and France
pressing for a decision by the end of March.
"All solutions should
be explored," Coeure said. "I wouldn't include a general bail-in of
depositors as part of the solution given the risks that it would pose
for financial stability.
"So I think the possible bailing-in of
depositors across the board is not an option that can be envisaged given
this hasn't been done in any country. It would be entirely new and I
don't think it's time to make experiments now."
Pressed to say if
that left open the possibility of a narrower bail-in of deposits above
the EU-guaranteed threshold of 100,000 euros, he said: "There needs to
be an appropriate burden-sharing in the programme because we need to
achieve debt sustainability. But no bail-in across the board.
"I don't pre-judge any instruments because the vocabulary matters and there are many ways to achieve burden-sharing."
Asked
if that was his personal view or that of the ECB board, Coeure said:
"I'm pretty sure that (Mario Draghi) is comfortable with the way I've
phrased it. No bail-in across the board of depositors."
Having
bank account holders bear some of the costs is a risky strategy not only
because there is no precedent in the previous bailouts in the eurozone
debt crisis, but also because it raises the risk of a run on Cypriot
banks.
Cyprus has a bloated banking system with deposits that
reached more than €70 billion, although latest figures show that
deposits reached their lowest levels in three years in January,
according to a statement released by the Cyprus Central Bank.
Last
month saw a significant outflow of deposits from the domestic banking
system, with €1.73 billion taken out of banks, representing a 2.5 per
cent reduction compared to December.
January deposits dropped to €68.42 billion from €70.15 billion the month before, marking the lowest level in three years.
Around a third of the deposits in Cyprus are from non-residents, including many Russian and British businesses.
One
proposal for having depositors foot the bill would involve freezing any
amounts above 100,000 euros with the total held in an escrow account
and used either to shore up the capital of the banks or as collateral
for loans.
Cyprus, which elected a new, conservative president on
Sunday, is adamantly opposed to the bailing-in of depositors or
bondholders, concerned that it will destabilise its already shaky
economy and undermine its business model.
But there may be no way
to avoid such a move if the European Central Bank, the IMF and the
European Commission, together known as the troika, agree that such a
step is necessary to make Cypriot public debt manageable.