The European Central Bank said it may cut Cypriot banks off from emergency funds after March 25 as the island nation’s president, Nicos Anastasiades, pursued options at home and in Russia to stave off financial collapse.
The ECB’s Governing Council said today that so-called emergency liquidity assistance, or ELA, “could only be considered” after Monday if an aid program from the euro area and International Monetary Fund “that would ensure the solvency of the concerned banks” is in place, the central bank said today in a statement.
In Nicosia, the Cabinet will meet at 6 p.m. today to discuss a proposed “investment solidarity fund,” according to a statement. The fund is intended to help raise the 5.8 billion euros ($7.5 billion) needed to trigger emergency loans, Athens News Agency reported. Finance Minister Michael Sarris said in Moscow that while Russia won’t lend money to Cyprus, it’s looking at investment in the energy industry.
Cyprus in June became the fifth euro-area nation to request a rescue after Greece’s debt restructuring, the largest in history, trashed the financial health of lenders including Bank of Cyprus Plc and Cyprus Popular Bank Pcl, the nation’s two biggest.
“With this statement, the ECB put even more pressure on European finance ministers and the Cypriot government to come up with a deal,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. “But we’ll have to see whether they’ll actually follow through with their threat if there’s no deal by Monday and policy makers decide to further extend the bank holiday.”
Dutch Finance Minister Jeroen Dijsselbloem, who leads meetings of euro-area finance chiefs, said he didn’t think the ECB was threatening Cyprus.
“That just stresses the point of the urgency, first of all on the Cypriot government,” he told European Union lawmakers in Brussels today. “We need to reach agreement on a program very, very soon. I think the ECB has a valid point there.”
Euro-area finance ministers on March 16 agreed to an unprecedented tax on Cypriot bank deposits as officials unveiled a 10 billion-euro rescue plan for the country. The government amended an initial proposal to exempt deposits of up to 20,000 euros, but failed to win support in parliament as popular dissent mounted.