Cyprus is to lift a ban on casinos as part of measures to counter the economic shock of a much larger than expected 60% raid on the savings of the island’s most wealthy depositors.

President Nicos Anastasiades outlined a 12-point plan to rescue the troubled economy before travelling to Athens, where he was reported to be meeting the Greek prime minister to petition for €2bn in aid, despite Greece’s own economic collapse.

The Cypriot bailout is the first eurozone rescue package to punish savers by forcing them to hand over a slice of their savings in broken banks. The sums are far higher than original estimates that Bank of Cyprus depositors would take a 30% or 40% hit. The conditions were imposed when Cyprus was told to find €5.8bn as a condition of a €10bn loan from the International Monetary Fund.

Anastasiades has braved the wrath of the influential Orthodox church by declaring that he will allow casinos to operate in Cyprus. Gambling has until now been legal only on the northern, Turkish side of the island.

The president’s other initiatives, outlined in an interview with the newspaper Fileleftheros Sunday, include tax exemptions on business profits reinvested in Cyprus and encouraging homeowners to reduce rents.

Anastasiades, who came to power after elections in February, was understood to be holding talks with the Greek prime minister, Antonis Samaras, who backed demands from the European troika that Cyprus pay for its bailout with a raid on bank deposits.

To persuade Greece to hand over some of its own €48bn rescue loan, he planned to meet also with Samaras’s coalition partner Evangelos Venizelos, as well as opposition party leaders and Greek president Karolos Papoulias.

Bank of Cyprus customers with deposits of more than €100,000 learned at the weekend that 37.5% of any money they hold over that threshold will be converted into shares in the country’s largest bank, which are currently almost worthless. A further 22.5% of their savings will be put into a fund that earns no interest and could be confiscated should the bank need further funds.

The remaining 40% of large deposits at the Bank of Cyprus will be “temporarily frozen for liquidity reasons”, but continue to accrue existing levels of interest, plus another 10%, the central bank said.

The savings converted to bank shares would theoretically allow depositors to recover their losses. But the stock now holds little value and may never regain a value equal to the depositors’ losses.

Businesses have been particularly affected by the measures. Fast-growing digital company Viber is headquartered in Cyprus and offers a service similar to Skype, designed for mobile phones. Its CEO, Talmon Marco, said he was considering leaving the island. “This is an extremely poor decision. We are considering all options at the moment,” he added.

Cyprus’  finance minister Michalis Sarris said the measures were taken to put the Bank of Cyprus on a solid footing.

“We suffered a serious blow without doubt … but we now have a bank which is reformed and ready to assume its role in the Cypriot economy,” the state-run Cyprus News Agency quoted him as saying.

Observers have accused some of the 17 European countries that use the euro of wanting to see the end of Cyprus as an international financial services centre. They have also been accused of trying to send a message that European taxpayers will no longer shoulder the burden of bailing out problem banks.

But Germanfinance minister Wolfgang Schäeuble challenged that notion, insisting in an interview with the Bild newspaper published on Saturday that “Cyprus is and remains a special, isolated case”, and doesn’t point the way for future European rescue programs.

Recovery gambles

The Cypriot president, Nicos Anastasiades, will introduce 12 measures to relieve the crisis, to be implemented over the next six months. In a plan reminiscent of Spain’s project to create a EuroVegas gambling resort on farmland near Madrid, Cyprus wants to put forward legislation to allow its own casinos. This would be a public policy reversal for the island, which only last year banned online casinos and exchange betting.

Other measures include: forcing the housing department of housing to license development projects within at least 30 days; exempting company profits reinvested in Cyprus from tax; encouraging banks to lend for longer terms at lower rates; compelling businesses to ensure at least 70% of staff are Cypriot; finding ways to cut the cost of electricity; and nudging landlords to reduce rates with the threat of urgent interim measures if they do not respond.


Leave a Reply