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Tue Mar 26, 2013, 07:50 AM

(WSJ:) Bailout Strains European Ties [View all]

... Monday's agreement capped a 10-day psychological drama. Cyprus's president struck an initial deal that would have seen the country raise its share of the bailout funds by requiring all account-holders in Cypriot banks to pay a tax on their deposits, only to see the plan struck down by parliament. Cyprus went hat-in-hand to Moscow for help, to no avail. Cyprus also raised eyebrows in euro-zone central banks by allowing several hundred million euros to be wired out of the country in the past week, despite an official freeze on outflows on all but a few exempt categories, such as funds for humanitarian purposes.

On Thursday morning, the European Central Bank threatened to cut off liquidity to Cypriot banks—condemning them to instant bankruptcy—if no deal was reached by Monday... In the end, this deal ended up looking like a more severe version of an early proposal floated by Germany and the International Monetary Fund to close the country's two biggest banks—a plan that had been rejected by Cypriot president Nicos Anastasiades 10 days earlier... On Friday morning, Ms. Merkel's patience was running out. She angrily briefed lawmakers from her ruling center-right coalition and told them Cyprus was trying to face Europe down, according to people present. Cypriot leaders haven't understood yet that their "business model" of outsize offshore banking has failed, she said. Europe had to stick to its principles, she added: Aid is only for countries that were prepared to reform, she said...


... Tensions were running high Sunday in Brussels as key officials—including IMF chief Christine Lagarde, ECB head Mario Draghi, EU President Herman Van Rompuy and other top EU officials—met Mr. Anastasiades over a lunch of lamb and baby potatoes. Mr. Anastasiades complained that his country was being treated more harshly than any of the euro zone's other bailout victims. He backtracked on an earlier agreement to wind down Cyprus Popular Bank. According to a senior Cypriot official, Mr. Anastasiades was appalled by the way he was spoken to at the lunch. The president threatened to resign. Mr. Dijsselbloem told him he didn't care about the president's political future, only the future of the euro zone, the senior official said...


... Germany's Finance Minister Wolfgang Schäuble grew particularly irascible, officials said. At one point, Ms. Lagarde went to calm him down. She also tried to raise spirits in Mr. Van Rompuy's fifth-floor suite, where top EU officials were meeting with Mr. Anastasiades. The IMF chief handed out M&Ms, as officials say she often does at late-night European negotiations... As the evening dragged on, Mr. Schäuble and French Finance Minister Pierre Moscovici consulted their respective leaders by phone. Then they conveyed a Franco-German message to the Cypriot leader: Mr. Anastasiades should give up hope that a summit of euro-zone leaders would lead to an easier deal. Even if a summit were to be called, the deal facing Cyprus would be the same one as now.

Shortly before midnight, the Cypriot president came back with a new proposal, which officials said backtracked on the closure of Cyprus Popular. At that point, the EU leaders calmly told Mr. Anastasiades "to pack up and leave" if he wasn't ready to cooperate, one official present at the meeting said. The president signed off on the broad deal—one more costly than the one its parliamentarians rejected last week. "There is no doubt in the government that the first deal was far better," said a senior Cypriot official. "We bluffed and we lost. The whole thing was a fiasco."


/Source (text)... http://online.wsj.com/article/SB10001424127887323605404578382943506534114.html?mod=wsj_share_tweet

/See also (images)... http://www.telegraph.co.uk/finance/debt-crisis-live/9953844/Cyprus-bailout-live.html , http://www.guardian.co.uk/business/2013/mar/26/eurozone-crisis-cyprus-banks

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