Borg: Cyprus has a week to avoid collapse

Swedish Finance Minister Anders Borg has said that Cyprus has around a week to find a negotiated settlement to its financial travails or face the prospect of meltdown.

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"In principle they have only the finance sector and beaches to offer and now the banks are on their way to closure. It is obviously a tough situation," Borg said at a seminar on Wednesday.

Speaking a day after the Cypriot parliament rejected a bailout package which included a controversial proposal to impose a levy on bank deposits, Borg underlined that the crisis across southern Europe remains deep and requires major reform.

While Borg argued that the money was required in order to keep Cyprus's national debt at a manageable level, Borg agreed that the plan to levy a spot tax on savings accounts held in Cypriot banks was far from ideal.

"To levy these sorts of taxes on depositors is very extraordinary from a Swedish perspective," he said.

Borg furthermore added that the proposal has made him even more sceptical of linking Swedish deposit guarantees to the eurozone system.

"Swedish taxpayers shall quite simply not be required to pay for other countries' crisis-hit banks."

Cyprus president Nicos Anastasiades on Wednesday met with party leaders to try to piece together an alternative plan following the rejection of the package put together by the EU, ECB and IMF.

Under the conditions of the deal Cyprus is required to come up with €5.9 billion ($7.6 billion) in order to secure a €10 billion emergency loan.

Anders Borg explained the challenge lies in finding capital for the country's banks, whose assets equate to 900 percent of the country's GDP. He suggested that this can be done either through writing off debts or by capital injection.

According to media reports on Wednesday this search for an alternative source of capital has now shifted Nicosia's attention towards Russia, despite pledges from the eurozone that there is enduring commitment to helping the troubled island nation.

Russians account for between a third and half of the deposits in Cypriot banks and President Vladimir Putin has been scathing in his criticism of the plan to tax savings.

According to speculation in the Russian media, state-owned oil and gas giant Gazprom is mulling an offer to shore up the Cypriot bank balance sheets in exchange for offshore drilling rights.

According to a report in the Svenska Dagbladet (SvD) daily on Tuesday, Swedish banks have received a slew of inquiries from concerned customers of banks in Cyprus and across the region looking for safer havens for their savings.

The inquiries have furthermore come from both ex-pat Swedes and international clients, according to the newspaper's report.

"We can confirm that the number of inquiries from clients in other crisis-hit countries has increased," said Henrik Westman at Handelsbanken to SvD.

Banks in Cyprus have remained closed while the emergency package was being debated and are expected to open again on Thursday amid fears of a looming bank run.

TT/Peter Vinthagen Simpson
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