A week of nervous panic and public outrage continued in Cyprus on Friday as government ministers said a bailout deal was again close to being reached between the island nation and its creditors from mainland Europe.
The country's banks remain closed until next week, but the furor caused by an announcement nearly six days ago—which including a plan to levy individual bank deposits in order to raise funds to secure a loan of 10 billion euros ($13 billion) from the European Union, European Central Bank, and the IMF—has overtaken the country.
As the day turned into evening in the capitol of Nicosia, media reports indicated that parliament might vote on only three bills on Friday, including the restructuring of a key bank in the country, but that legislation surrounding the levying of deposits may not happen until Saturday morning.
Averof Neophytou, deputy leader of the ruling Democratic Rally party, said Cypriot political leaders were close to a compromise that would let parliament reverse its rejection of a rescue package offered by euro zone partners a week ago under which holders of bank deposits would suffer losses.
Finance Minister Michael Sarris, returning empty-handed from Moscow, said a bank deposit levy was back "on the table".
Germany warned Cyprus it was "playing with fire", with the clock running down to a Monday deadline set by the European Central Bank when it will sever essential cash flows to Cypriot banks if no bailout program is agreed.
And the Los Angeles Times reports:
Failure to produce a viable bailout scheme by Monday will force the European Central Bank, according to an ultimatum it issued earlier this week, to stop funneling billions of dollars into Cyprus’ cash-strapped financial system, leaving the island nation to fend for itself.
Though Cyprus has a small economy accounting for 0.2% of economic output in the Eurozone, the 17 nations that use the euro currency, letting the island go under could have a ripple effect on the region and perhaps beyond, officials and analysts fear.
SCROLL TO CONTINUE WITH CONTENT
Get our best delivered to your inbox.
Despite its size, Ellen Brown of the Public Banking Institute in the U.S. describes why the battle in Cyprus could have enormous implications for other nations and the world economy.
Cyprus is a small island, of little apparent significance. But one day, the bold move of its legislators may be compared to the Battle of Marathon, the pivotal moment in European history when their Greek forebears fended off the Persians, allowing classical Greek civilization to flourish. The current battle on this tiny island has taken on global significance. If the technocrat bankers can push through their confiscation scheme there, precedent will be established for doing it elsewhere when bank bailouts become prohibitive for governments.
Talk of a Eurozone exit has been ongoing thoughout week, with many progressive economists saying that such a threat by Cyprus to exit the single currency may be the only quality leverage it has left in order to refuse what has been termed "a bank robbery" by the European "Troika" against the people of Cyprus.
As Robert Kuttner, writing for The American Prospect on Thursday, argued:
If Cyprus or Greece or Spain or Portugal (or better yet, all of them en bloc) decided to quit the euro and revert to drachmas and pesetas, they would need to block bank accounts, impose currency and capital controls, and default on some of all of their foreign debts, which would be re-denominated in the new local currency. There would be lawsuits up the gazork, but the IMF and ECB would have to step in to limit the broader damage even if they disapproved.
It would not be pretty, but it has been done before. In fact, in the past century, some 69 countries have abandoned currencies. [...]
After a relative brief period of worse economic pain, these small nations would emerge with far greater freedom of action over their own economic destiny. They would have currencies that were a lot cheaper internationally, which would be good for exports and for tourism.
Decrying the position of the Troika, Glen Ford, editor of the Black Agenda Report, said that the austerity measures taking place in Cyprus were happening all over the world, from the countries of southern Europe to the urban cities of the United States.
"In Cyprus," Ford writes, "they are prepared to brazenly snatch euros directly from working and retired people’s accounts to fund a bank bailout, without even bothering to construct a convoluted pathway from the victims’ accounts to their own. They have reached the point of outright confiscation, and will not stop until they have stripped society of the potential to save itself from the ruins."
Reporting on the possible bank runs that could occur, the LA Times adds that "analysts fear that as much as $30 billion could be pulled out of the banks when they reopen Tuesday, which could have consequences on neighboring countries."
“If this proves uncontrollable and unsustainable, Cyprus may go up in flames, singeing Spain and Italy,” said Alexander Apostolides, a leading economic analyst in Nicosia.