Phuket Gazette World News: Cyprus crisis; Aus PM Gillard in leadership battle; Killer bees attack SA school

– World news compiled by Gazette editors for Phuket’s international community

Cyprus scrambles to avert meltdown, EU threatens cut-off
Reuters / Phuket Gazette

PHUKET: Cyprus considered nationalising pension funds and ordered banks to stay shut till next week to avert financial chaos after it rejected the terms of a European Union bailout and turned to Russia for aid.

Crisis talks among the political leadership in Nicosia are set to resume today after late-night meetings to discuss a “Plan B” broke up last night without result.

EU officials voiced frustration but little sympathy for an ambitious but now bust banking system that extended itself well beyond the island; Russia, whose citizens have billions to lose in those Cypriot banks, called the EU a “bull in a china shop”.

President Nicos Anastasiades, just a month in office and wrestling with his country’s worst crisis since the Turkish invasion of 1974 that divided Greek- and Turkish-speaking Cypriots, is due to meet party leaders at 9:30am (1:30pm Phuket time).

The deputy leader of his Democratic Rally warned time was running out: “We don’t have days or weeks, we have only hours to save our country,” Averos Neophytou told reporters.

Banks, shut since the weekend, are to stay closed for the rest of the week and so not reopen till Tuesday after a holiday weekend, a government official told Reuters, extending the misery of Cypriot businesses already feeling the pinch.

Without a resolution, the fate of the small nation of just 1.1 million has shaken confidence in the single-currency euro zone and raised geopolitical tension between the EU and Russia.

Finance Minister Michael Sarris extended a stay in Moscow, where Russian officials said he asked for a further 5 billion euros on top of a five-year extension and lower interest on an existing 2.5-billion euro loan from Moscow.

In a vote on Tuesday, the island’s tiny legislature threw out a proposed tax on bank deposits in exchange for a 10-billion euro bailout from the EU, a stunning rejection of the kind of strict austerity accepted over the past three years by crisis-hit Greece, Portugal, Ireland, Spain and Italy.

Russian Prime Minister Dmitry Medvedev, who was preparing to meet an EU Commission delegation in Moscow on Thursday, said the bloc had behaved “like a bull in a china shop” and likened its proposals, which would force Russian customers to contribute to the rescue of Cypriot banks, to Soviet-era confiscations.

But the European Central Bank kept the pressure on, warning that it would have to pull the plug on Cyprus unless the country, one of the smallest of the 17 members of the euro zone, took a bailout quickly.

Despite the looming threat of default and a banking collapse, Cypriots on Tuesday balked at EU demands for a levy on bank deposits to raise 5.8 billion euros, once taboo in Europe’s handling of the stubborn debt crisis.

Levy still in play?

Anastasiades chaired meetings throughout yesterday with party leaders, ministers and officials from the troika of EU, ECB and International Monetary Fund lenders. The government said a “Plan B” was in the works.

Officials said it could include: an option to nationalise pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.

With Cypriot Energy Minister George Lakkotrypis also in Moscow, officially for a tourism exhibition, speculation was rife that access to untapped offshore gas reserves could be on the table as part of a deal for Russian aid.

Finance minister Sarris said talks with his Russian counterpart, Anton Siluanov, would continue, but there had not yet been any offers, “nothing concrete.”

Cyprus is a haven for billions of euros squirreled abroad by Russian businesses and individuals – a factor, too, in the reluctance of Germany and other northern euro zone states to bail out Cypriots without a contribution from bank depositors.

The island’s banking sector has been crippled by its exposure to bigger neighbour Greece. Athens said Greek branches of Cypriot banks would also stay shut till the weekend.

Slowing trade

The proposed levy on deposits would have taken nearly 10 percent from accounts over 100,000 euros. Smaller accounts would also have been hit, although the government proposed softening the blow to spare savers with less than 20,000 euros.

Chancellor Angela Merkel, facing an election this year in Europe’s main paymaster Germany, said it was fair to expect those with savings over 100,000 euros – the normal limit for EU state deposit insurance – to contribute to a bailout.

While taxing even small savers was politically explosive, the Cypriot government had balked at sparing them by imposing a higher tax on big depositors – fearing for an offshore banking business that accounts for a big share of its economy.

European officials were growing increasingly exasperated. But the idea of bankruptcy for a member of the euro zone, however small, raises fears for confidence in the currency.

“There is no obligation to accept help,” said Polish Foreign Minister Radoslaw Sikorski, whose country does not use the euro. “Cyprus has the possibility of living with its own mistakes.”
Australia PM Gillard called to step aside, hold leadership vote
Reuters / Phuket Gazette
PHUKET: Australia’s Prime Minister Julia Gillard faces a leadership challenge after rivals called for a ballot to resolve months of slipping polls and internal tensions that put her minority Labour government on course to be swept away at September elections.

“This is not personal. It’s about the party, the future of the country,” said senior Labour minister Simon Crean, calling the challenge to break a deadlock between Gillard and chief rival Kevin Rudd, who she deposed in 2010.

Crean, who a former strong Gillard supporter, said Gillard had told him she would not call a leadership vote and he urged Labour Party members now to bring on a ballot under party rules.

If the ruling Labour Party replaces Gillard, that could prompt an early election as a new leader would not have guaranteed support of key independents in Australia’s hung parliament. Gillard has set September 14 as the election date.

Gillard, who replaced Rudd in a partyroom coup in June 2010, has seen her leadership under threat for most of the past two years and her minority government has been unable to turn around a long-running slump in opinion polls, fuelled in part by internal instability, as well as flagging economic conditions.

The conservative opposition led by Tony Abbott is well ahead in opinion polls and has promised to scrap a 30 percent tax on coal and iron ore mine profits, and to scrap an unpopular tax on carbon, if it wins power.

Financial markets had little reaction to the news. The Australian dollar was a shade firmer on the day thanks mainly to a surprisingly strong reading of manufacturing from China, Australia’s biggest export market.

The currency was at $1.0380 and holding in a very tight range. Government bonds hardly budged, with investors assuming future borrowing needs would be much the same whichever leader or party was in power.
— Phuket Gazette Editors

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