Cyprus must come up with a bailout proposal and will probably have to take money from bank depositors to secure funding from Europe, according to Citigroup Inc. Chief Economist Willem Buiter.
‘The ball is in the Cypriot court now,’’ Buiter said in an interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. “The euro area has drawn a line in the sand. Cyprus has to come up with 5.8 billion euros ($7.5 billion) of unborrowed money. They are not going to budge on that.”
Euro-area finance ministers expect a proposal from Cyprus “as rapidly as possible” to raise the funds needed to trigger emergency loans, according to a statement issued after a teleconference held late yesterday. The country’s parliament resumes debate today on legislation to unlock bailout funds and prevent a financial collapse.
“The only place to get it in a hurry is from bank creditors,” Buiter said. “In Cyprus, that means depositors as there are no other meaningful creditors. So, one way or another, depositors are going to get a haircut,” he said, referring to uninsured deposits.
Cyprus government spokesman Christos Stylianides said today that talks with the so-called troika of international creditors are at a final, sensitive stage. Lawmakers will convene shortly to take difficult decisions, he said.
Buiter, a former Bank of England policy maker, said Cyprus exiting the euro would be a “disaster” for the country.
“If they do, their standard of living will be reduced to levels not seen in 30 years,” he said. “It would wipe out the saving and the wealth of the Cypriot saver. It would be a financial catastrophe.”
Cyprus rejected a proposal to tax bank deposits hammered out last weekend by euro-area finance ministers. The European Central Bank, which makes up the troika along with the International Monetary Fund and the European Commission, issued a deadline for the end of March 25 for a deal before it cuts off emergency funding to the nation’s lenders.
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