NEWS,25.03.2013

Only two banks to reopen in Cyprus

Cyprus' central bank says all banks in the country except the two biggest will reopen for business on Tuesday, more than a week after they shut down to prevent a run.Laiki and Bank of Cyprus will remain closed until Thursday, and a withdrawal limit from ATMs of €100 ($130) a day will also remain in place until then, the bank said.Financial institutions in the country have been shut since March 16 as Cyprus and its international lenders struggled to agree on a plan to raise funds so the island could qualify for a bailout package.Cypriots express fearsCypriots expressed fears for their jobs and their businesses on Monday after the island agreed to a tough bailout, while accusing other European nations of trying to destroy their country.Although there were none of the violent protests that have hit other bailed-out euro nations, anger bubbled below the surface of the cafes in Nicosia where hundreds of young people gathered on what was a national holiday."We laugh about it because if we did not laugh we would lose our minds," said Antonia Epaminondou, 28, who was with a group of friends sitting in bright sunshine on Ledra street, downtown Nicosia's busiest shopping area.Epaminondou said she worked for a subsidiary of debt-stricken Laiki, or Popular Bank, the Mediterranean nation's second largest bank. Laiki will effectively be shut down under the deal agreed in the early hours of Monday."Of course I am afraid I will lose my job. But it is the same for all of Cyprus - we are all afraid," she said.The government has defended the 11th hour deal, which will also deal a major hit to investors in depositors in the island's top bank, the Bank of Cyprus, as necessary to avoid a default and remain in the euro.Most Cypriots put the blame on the "troika" of the European Union, International Monetary Fund and European Central Bank, saying they had bullied an island whose economy is just a fraction of a percentage of the EU's.'A victim of the Germans'"Cyprus is a victim of the Germans," said George Evagorou, 50, who runs a transport company."They want to be leaders of Europe. The Germans and the French want to conquer us through the economic system."Evagorou said capital controls imposed to stop a run on struggling Cypriot banks meant he had been unable to get enough cash to prepare his fleet of vehicles for the coming tourist season.Other Cypriots had more immediate worries as they tried and failed to get money out of ATM machines."It's a disaster," Tudor Neagu, a client of Laiki Bank, as he unsuccessfully tried to withdraw cash from an ATM in Ledra Street.Cypriot authorities closed banks for 10 days as the government scrambled to seal a deal. Banks have also imposed tough daily ATM limits of €100 a day for Laiki bank and €120 a day for Bank of Cyprus.No cash in ATMs"I'm unable to withdraw cash as the machine doesn't work. I doubt Cyprus will ever revive again," he lamented, before the customer who was in the queue behind him was also unable to get any cash from the machine.The controls also threaten Cyprus businesses, with the possibility that many will not be able to pay employees or conduct normal business."Personally I don't know whether I will have work in the future, because the company I work for has accounts with one of the banks, said Maria Makri, 33, an employee of a fertilizer export company."The payroll of the company, the provident fund of the company, we do not know what will happen," she said at a cafe in Nicosia.Makri added that the "European idea does not exist any more" after the behaviour of Cyprus's European partners.Travel agency employee Maria Spyrou, 31, said foreign clients had been calling to cancel contracts because of uncertainty over Cyprus's future."We have been treated very badly. I don't know the reason that other countries want to destroy us," she said, adding that she blamed "the German government, although not the German people."The Russian linkIlias Toursidis, the owner of a shop in one of the Old City's narrow lanes that sells only Russian products, and his assistant Melina were also very concerned.Russian clients stood to be among the biggest losers as many had put their money in banks in Cyprus because of its reputation as a tax haven."If people have their jobs, we also have work. If they don't have their jobs, then we don't have (them)," a flustered Toursidis said as he took his cap off and wiped his brow.Melina added: "If the Russians leave, then we will probably close because only Russians buy from here," she said.The situation also affected Cyprus's significant migrant workforce, which includes many Filipinos and South Asians."No money in the bank. I need food, I need to pay my rent. I need everything. I came but the bank did not give us our money," said Fawzi Allada, a Pakistani who showed his anger by pretending to tear up his Bank of Cyprus cheque book.

Govt: Cyprus deal heralds new beginning

The Cyprus bailout deal concluded early Monday in Brussels ended uncertainty and prevented a "disorderly default" that could have seen Cyprus exit the eurozone, the Cypriot government spokesperson said. "Finally, Cyprus has ended a period of uncertainty and insecurity for the economy. A disorderly default was avoided, which would have meant leaving the eurozone, with devastating consequences," spokesperson Christos Stylianides said in a statement."A disorderly default was avoided, which would have meant leaving the eurozone, with devastating consequences."Early Monday the eurozone struck a deal with Cyprus to resurrect a bailout for its government, but only after a radical downsizing of the island's financial sector.Under the terms of the agreement the island's second largest lender Laiki (Popular Bank) will be wound up while the Bank of Cyprus, the island's No.1 lender, will have to endure a major "haircut" on all deposits of more than €100 000."The important thing is that we have reached an agreement that allows us to kick-start the economy and lay the groundwork for a new beginning," Stylianides said."Without doubt that there are painful aspects that will place a burden on all of us."Diko MP and chairperon of parliamentary finance committee, Nicolas Papadopoulos, too spoke of the pain the deal will deliver to Cypriots."Without a shadow of a doubt the eurogroup deal and bailout agreement with the troika is a very painful one," he said.In other early reaction, Green party MP George Perdikes told state television, "once the pressure has lifted we should seriously look at whether staying in the euro is in our interest or whether it is worth changing our currency".Former Cyprus central bank governor Afxentis Afxentiou told state radio "Cyprus has suffered a big hit and our standard of living will spiral downward, although the economy maybe able to recover in 2-3 years our standard of living will take at least 10 years to return." Cyprus President Nicos Anastasiades, meanwhile, sent a tweet in which he expressed gratitude to Cypriots."Thank you for your messages of support. They gave me strength during last night's struggle to secure the best possible outcome for Cyprus," said the tweet.

Cyprus secures bailout, avoids bankruptcy

Cyprus secured a €10bn package of rescue loans in tense, last-ditch negotiations early Monday, saving the country from a banking system collapse and bankruptcy that could have destabilised the entire euro area."We've put an end to the uncertainty that has affected Cyprus and the euro area over the past week," said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone's finance ministers.In return for the bailout, Cyprus must drastically shrink its outsized banking sector, cut its budget, implement structural reforms and privatise state assets, he said. The country's second-largest bank will be shut down immediately, with all bond holders and people with more than €100 000 in their bank accounts there facing significant losses. The measures are likely to deepen the recession in Cyprus and lead to more job losses.The cash-strapped Mediterranean island nation has been shut out of international markets for almost two years. It first applied for a bailout to recapitalise its ailing lenders and keep the government afloat last June, but the political negotiations stalled. After a botched agreement last week, the European Central Bank moved forcefully to focus leaders' minds, threatening to cut off crucial emergency assistance to the country's banks by Tuesday if no agreement was reached."It's not that we won a battle, but we really have avoided a disastrous exit from the eurozone," said Cyprus' Finance Minister Michalis Sarris. "A long period of uncertainty and insecurity surrounding the Cyprus economy has ended."The eurozone finance ministers accepted the plan, reached after more than 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors - the International Monetary Fund, the European Commission and the ECB."We believe that this will form a lasting, durable and fully financed solution," said IMF chief Christine Lagarde.Without a bailout deal by Monday night, the tiny nation of about 800 000 would have faced the prospect of bankruptcy, which could have forced it to become the first country to abandon the euro currency. That would have roiled markets and spurred turmoil across the entire eurozone of 300 million people, analysts said, even though Cyprus only makes up less than 0.2% of the eurozone's €10 trillion economy.After the eurozone's finance ministers' approval, several national parliaments in eurozone countries such as Germany must also approve the bailout deal, which might take another few weeks. EU officials said they expect the whole program to be approved by mid-April.Under the plan, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than €100 000 there will have to take losses, Dijsselbloem said, adding that it was not yet clear how severe the losses would be."This will have to be worked out in the coming weeks," he added, noting that it is expected to yield €4.2bn overall. Analysts have estimated investors might lose up to 40% of their money.Savers' deposits with all Cypriot banks of up to €100 000 will be guaranteed by the state in accordance with the EU's deposit insurance guarantee, Dijsselbloem said. Laiki will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.Large deposits with Bank of Cyprus above the insured level will be frozen until it becomes clear whether or to what extent they will also be forced to take losses, the Eurogroup of finance ministers said in a statement.Dijsselbloem defended the creditors' approach of making deposit holders take heavy losses, saying the measures "will be concentrated where the problems are, in the large banks."The international creditors, led by the IMF, were seeking a fundamental restructuring of the country's outsized financial system, which is worth up to eight times the Cypriot gross domestic product of about €18bn. They said the country's business model of attracting foreign investors, among them many Russians, with low taxes and lax financial regulation had backfired and needed to be upended.The drastic shrinking of the financial sector, the wiping out of wealth through the losses on deposits, the loss of confidence with the recent turmoil and the upcoming austerity measures all mean that Cyprus is facing tough times."The near future will be very difficult for the country and its people," acknowledged the EU Commission's top economic official, Olli Rehn. "But (the measures) will be necessary for the Cypriot people to rebuild their economy on a new basis."Cypriot banks have been closed this past week while officials worked on a rescue plan, and they are not due to reopen until Tuesday. Cash has been available through ATMs, but long lines formed and many machines have quickly run out of cash.Amid fears of a banking collapse, Cyprus' central bank on Sunday imposed a daily withdrawal limit of €100 from ATMs of the country's two largest banks to prevent a bank run by depositors worried about their savings.The Cypriot government also approved a set of laws over the past week to introduce capital controls, in order to avoid a huge depositor flight once banks reopen.To secure the rescue loan package, the Cypriot government had to find ways to raise several billion euros on its own. The bulk of that money is now being raised by forcing losses on large deposit holders, with the remainder coming from tax increases and privatisations.The creditors had insisted that Cyprus couldn't receive more loans because that would make its debt burden unsustainably high. The IMF's Lagarde said Cyprus would now reach a debt level of about 100% of GDP by 2020.A plan agreed to in marathon negotiations earlier this month called for a one-time levy on all bank depositors in Cypriot banks. But the proposal ignited fierce anger because it also targeted small savers. It failed to win a single vote in the Cypriot Parliament.Cyprus' bid to secure more financial aid from its long-time ally, Russia, then failed, forcing it to turn again to its European partners. Russia was expected, however, to extend a €2.5bn emergency loan granted last year, also lowering the interest rate due and extending then repayment schedule.

Emerging markets thrive amid global woes

No matter how Cyprus's financial drama ends, its troubles show yet again that rich countries enfeebled by the great financial crisis remain a weak link in the world economy.By comparison, emerging markets are not only looking stronger but are also contributing more consistently to global growth.At worst, if Cyprus has to abandon the euro, fragmentation of the single-currency bloc would chill investment and could reduce trend growth in the eurozone's four major economies by a full percentage point on average in the period 2015-2020, according to economists at Bank of America Merrill Lynch.Under that scenario, trend growth in Germany could fall to zero, they said.Even if a solution is found that keeps the tiny Mediterranean island afloat, the inept handling of the crisis has revived political risk. Confidence in the eurozone economy, already relapsing after a fairly bright start to the year, can only suffer.Several banks lowered their forecasts for the bloc on the heels of grim purchasing managers' surveys, and a clutch of sentiment indicators and money supply figures this week are likely to further underscore the economy's precarious position.While policy makers in the eurozone struggle to keep the single currency together, the leaders of Brazil, Russia, India, China and South Africa (Brics) will meet to strengthen the foundations of emerging markets' growth.The summit, to be held in Durban, South Africa, on Tuesday and Wednesday, is expected to give the go-ahead for a joint foreign exchange reserves pool as well as an infrastructure bank.The initiative is being hatched partly out of frustration with international financial institutions that they judge to primarily reflect the interests of industrialised countries. Jim O'Neill, the chairman of Goldman Sachs Asset Management, noted that, for all the havoc that Cyprus can potentially cause, its annual output of $22bn is no more than China produces in a week."For the Cyprus fiasco week to be followed by a Brics summit week sums up the changing fortunes of global economic development," O'Neill, who coined the Brics acronym in 2001, said.Source of strengthPortugal, mired in recession due to austerity measures demanded by international lenders, provides a vivid illustration of the growing importance of emerging markets.The number of Brazilians visiting Portugal has been growing by double digits for more than five years, according to Francisco Calheiros, president of the Portuguese Tourism Confederation.Sales to China from Volkswagen's factory outside Lisbon, the country's second-largest exporter, jumped 54% in 2012 even though the plant's total output fell 15%.Angola is now Portugal's fourth-largest market, accounting for 6.6% of its exports more than the United States."This is how we've been able to grow our exports, which is the only component in our GDP which is going up," said Joao Leite, an economist with Banco Carregosa in Lisbon.Global figures illustrate the relative vigour of developing countries.Trade in goods between advanced economies is down by 6% over the past four years whereas trade among emerging markets is up by 38%, according to Ebrahim Rahbari and Deimante Kupciuniene, economists at Citi."Trade transformation towards emerging markets has a long way to go," they said in a report.America's wary eye on emerging marketsA stronger net export performance is one reason why the United States grew modestly in the fourth quarter 2012 after a preliminary report that the economy shrank.Thursday's final revision for gross domestic product for the October-December period is likely to show a 0.5% rate of growth, according to economists polled by Reuters.Among the week's other data highlights, US durable goods orders and personal income are both expected to have rebounded in February from a swoon in January induced in part by an increase in payroll taxes.The debate in the United States on whether free trade is to blame for the stagnation of middle-class incomes and rising inequality is likely to heat up as talks over transatlantic and transpacific market-opening deals gather momentum.In a study for the Peterson Institute for International Economics in Washington, Lawrence Edwards and Robert Lawrence acknowledge that some of the public's fears are well founded because free trade can cause short-term job losses that put communities under strain.But they conclude that rapid growth in emerging markets is part of the solution to America's problems, not their source, because a rising tide lifts all boats."Developing country growth has therefore contributed toward faster US export growth, an increase in the variety of imports available to Americans, and higher terms of trade associated with any given trade balance," they wrote.

Saudi: $100 a fair price for oil

Oil prices at around $100 a barrel are reasonable for consumers and producers, Opec heavyweight Saudi Arabia's oil minister said on Monday, again highlighting the top crude exporter's preferred oil price.Saudi Arabia's Gulf ally Kuwait echoed the comments on price, saying the current levels were fair, with the market a little bit oversupplied. "I just came from Hong Kong and I told everybody, in 1996, I thought $20 a barrel was reasonable; in 2006 I thought $27 a barrel was reasonable and now it is around $100 a barrel. I told them again it is reasonable," Ali Al Naimi told reporters asking him what the fair price for consumers and producers would be. Current oil prices will not deter economic growth, he told an investment conference in Hong Kong last week, amid warnings from the International Energy Agency earlier this month on worsening Chinese business sentiment, a European slowdown and the prospect of US budget cuts potentially limiting demand for oil worldwide.In the second quarter, Saudi Arabia is expected to increase its oil output to match higher Chinese demand, industry sources said in February. Benchmark Brent has traded above $100 a barrel for most of the time since early 2011, driven by supply concerns. Unrest in Libya to a standoff over Iran's nuclear programme have all helped keep prices high, worrying investors that elevated energy costs will hurt the fragile global recovery. Brent swung between a high of $128.40 and a low of $88.49 and gained just 3.5% in 2012 from a year earlier. Prices for the benchmark crude so far this year have swung between $119.17 and the $106.80 a barrel it hit on Monday before rebounding to above $108 a barrel. Both Naimi and his Kuwaiti counterpart were speaking on the sidelines of an energy conference in Kuwait.Hani Hussein, Kuwaiti oil minister, said Opec member Kuwait's average oil production in March was a little less than 2.9 million barrels per day, but the market was a little bit oversupplied. Kuwait produces on average around 3 million bpd.