Cyprus Presents "Plan C" - The Solidarity Fund
Given the public unrest of the last few days, it would appear that the Cypriot government, having tried and failed with Plan A (wealth tax versions 1 and 2) and Plan B (beg the Russians directly), they have decided to go with Plan C (Collateralized Cypriot Obligations). The current proposal, ekathimerini reports, to theoretically be voted on in a few hours (about to be in cabinet), is that Cyprus will form an investment fund to raise the capital needed to payoff their EU overlords. This fund will be collateralized by state assets, possibly including natural gas revenues, church property, and social security fund reserves. Though some form of deposit tax was 'apparently' not ruled out, it seems the next last best hope for Cyprus is begging the Russians to extend a loan and begging the world to fund more debt from a nation about to see huge capital outflows. The approach is, it appears, a 'solidarity' approach - rather than tax the current wealth of depositors (and hand it over to Troika), 'tax' the future possibility of wealth creation and sell that to the next greater fool sovereign wealth fund (or will the ECB decide that these CCOs are acceptable collateral?)
Political leaders in Cyprus have agreed that their country should form an investment fund to raise the capital needed to agree a bailout with the eurozone and International Monetary Fund and avert a collapse of its banking system.
“We will find a solution,” said Neofytou. “We have no other choice. We are making a united effort to avoid our country’s bankruptcy and I think we will succeed.”
Nicosia plans to create a fund collateralized by state assets, possibly including natural gas revenues, church property and social security fund reserves. A proposal is due to be submitted to the House of Representatives on Thursday evening.
A government official who declined to be named told Bloomberg that some kind of deposit tax was not being ruled out.
"We are asking for help clearly, but something that would make also economic sense for Russia,” Sarris told reporters earlier.
Cyprus is also asking Moscow to extend the maturity of an existing 2.5-billion-euro loan. Sarris said that Russia was unable to provide Cyprus with a new loan.
Neofytou said that Cyprus would welcome Russian assistance but still needed to balance this against the requirements of remaining in the eurozone.
"We cannot reject any form of help but we are in the euros and we need the continue support of the ECB for liquidity," he said. "Any support is welcome but we should not forget that we are in Europe and we need European institutions to stabilize our economy."
Earlier, the ECB warned Cyprus on Thursday morning that the island’s banks might not qualify for emergency lending when they reopen next week.
“The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013,” it said in a statement.
“Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”
It is thought Cyprus Popular Bank (Laiki) – the island’s largest lender - would not be eligible for emergency funding under the ELA terms as it would be deemed insolvent.
Speaking to a European Parliament committee, Eurogroup chief Jeroen Djisselbloem said he felt a solution including some kind of deposit levy would be found.
“In the present situation I think there is definitely a systemic risk and I think the unrest of the last couple of days has proven this, unfortunately," he said