Cyprus Builds 'Plan B' Piece By Piece

Cypriot lawmakers tell EnetEnglish and The New Athenian that a key parliamentary bill being debated tonight will solely concern the formation of a Solidarity Fund, which will be comprised of the pension and health maintenance funds of the civil service and semi-state sector such as telecoms and port authorities. Public real estate might also form a part of these initial assets, the lawmakers said.  

The fund's value in this instance is estimated at about three billion euros, only half the value of the 5.8 billion euros Cyprus has to raise on its own in order to receive a 10 billion euro bailout loan from the European Union. It is therefore only the first part of what has come to be called 'Plan B' for Cyprus to avoid bankruptcy. Plan A was a one-time levy of up to 9.9 percent on bank deposits. Parliament rejected that after an outcry from Cypriot and foreign depositors. 


The solidarity fund would be open to private donations from Cypriots and from around the world, the lawmakers said. Those could eventually include the Church of Cyprus' offer to mortgage all its property holdings, but it could take time for their value to be assessed. It was also not clear how the government would use the asset pile, but the strongest scenario lawmakers said was for bonds to be issued on the strength of its assets. 

Cyprus' finance minister, Mihalis Sarris, who has been in Moscow since Tuesday, earlier told local media that he had offered the country's two insolvent banks, Marfin Popular Bank and the Bank of Cyprus, for possible sale to Russian interests. However, he said that in their current shape "they are not very attractive targets." The two banks are currently dependent on cashflows from the European Central Bank, which has said that it will cut them off after Monday unless "an EU/IMF programme is in place that would ensure the solvency of the concerned banks." Such a cutoff could trigger a collapse of Cyprus' entire financial system.

Parliament is also expected to discuss a separate bill on how to restrict cash withdrawals and money transfers when banks re-open next week, to avoid a sudden capital flight, CNA, the state news agency said. Some media outlets spoke of as many as nine bills. 

Should the banks fail to find a buyer, they could be included in the Solidarity Fund. However, that would almost certainly make it necessary for the government to bring back the levy on deposits in some form. While Cypriot banks are cash rich, holding some 63 billion euros in deposits, they have been fatally weakened by a restructuring of Greek debt in March 2012, to which they were overexposed. Marfin Popular Bank wrote down some three billion euros, while the Bank of Cyprus lost some two billion euros. They have been dependent on ECB emergency liquidity assistance ever since. Their depositors' money is the banks' biggest asset.

Another wildcard is a recently discovered oil and gas field southeast of the island. Its inclusion in the Solidarity Fund is not ruled out, but its value is difficult to assess precisely without further surveys.