Cyprus will refuse any demands for depositors in its banks to take losses as part of a planned international aid package for the country, said Finance Minister Michael Sarris, who warned that such a step would be a “self- inflicted catastrophe” for Europe.
“There is no way we can entertain the idea of any kind of haircut to any kind of deposits,” Sarris told reporters today in Brussels after his first meeting with euro-area counterparts since a new Cypriot government took office last week. “That is our firm position and we have communicated that.”
The euro area has refused to exclude the possibility of imposing losses on bank-account holders in Cyprus as a way to prevent its debt from becoming unsustainable following a rescue, which could be around the size of the Cypriot economy. Such an element isn’t part of existing aid packages for Greece, Ireland, Portugal and Spain.
“We do not wish to discuss anything unorthodox,” Sarris said. “This would be an accident in the euro zone not caused by markets, but a self-inflicted wound, a self-inflicted catastrophe, not only for Cyprus but for the euro zone and perhaps even beyond.”
Sarris linked the idea of losses for bank depositors in Cyprus to the presence of Russian money in the country. He said it’s unacceptable to distinguish between the nationality of bank depositors.
Describing Cyprus as being “under pressure” to demonstrate its debt can be kept sustainable, Sarris said the government can address these concerns through steps such as “stronger fiscal austerity” and “significant downsizing of the banking system, particularly in geographical areas outside Cyprus, including Greece.” He also cited a planned natural-gas fund.
“All these things are very credible,” Sarris said.
Cyprus agreed at the meeting of euro-area finance ministers to an independent evaluation of the country’s progress in enforcing legislation against money laundering. Sarris said the work could begin on March 12 and produce “essential” conclusions before the end of the month.
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