Cyprus: New bailout plan with lower levy

The Cyprus return back to Troika and the  initial agreement achieved with the Eurogroup  at 16th of March. The Cypriot Government failed to present a new reliable plan to Troika, after the disposal bill, by the Cyprus Parliament, to impose a stability levy in all depositors, as part of the bailout program. The Mediterranean island tried, without succes,  to reach a financial agreement with Russia.

According to the latest update, the new proposal prepared by the Cypriot Government (will be presented to political leaders, at Thursday morning) the Cyprus is ready to impose levy 4 – 5% in deposits over € 100,000. The deposits under € 100,000 will not be affected.

Alternative scenario refers to the levy as follows: 0-100.000 by 3%, from € 100,000 to €500,000 7% and 9% above €500,000.

Also the Cyprus will set up a Special Fund to Support the Economy. The Fund will be endowed with the gold of the state, government real estate and church property. Pension Funds will invest in the Fund.

The solution will be completed by the extension of the repayment period of the existing loan of 2,5 billion euro,  given by the Russia Federation at 2011.

As for the banks, it remains as an idea to create good / bad bank. It is possible the Government to enforce restriction in capital movement, for a short period, until the situation in financial sector be normal again.

It will also attempt an explicit reference in the Memorandum that there will be no new haircut in the future to curb the leakage of foreign companies and capital. Additional argument to remain foreign investors in country is the fact that the proposed haircut equivalent to interest  of one year.

According to information from Brussels initial agreement remain the basis for discussion. The Eurogroup  allowed Cypriots to choose the mix of policy, in order  to collect  5.8 billion euro without increasing the public debt.


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