Cyprus

There is growing expectation that losses may be imposed on senior bank bondholders as part of the imminent Cypriot bailout, despite a similar option being withheld from Ireland as part of the €64 billion Irish rescue package. Forcing bank bondholders to take a write-down on their debt is under active consideration by euro zone officials, according to a well-placed euro zone source. Depositors in Cypriot banks may also suffer writedowns, the Irish Times reported.

Germany is growing wary of saddling bank-account holders with losses as part of a rescue for Cyprus and no longer insists on a financial contribution from the International Monetary Fund, a close ally of Chancellor Angela Merkel said, Bloomberg reported. Michael Meister, deputy parliamentary floor leader of Merkel’s Christian Democratic Union party, floated concessions that would hasten the wrap-up of nine months of aid talks and lessen the risk that a financial accident in Cyprus, which makes up barely 0.2 percent of the euro-zone economy, could revive European market turbulence.

An increase in Cyprus's corporate tax rate is under consideration as part of negotiations over a proposed official bailout for the island, according to three people with knowledge of the talks, The Wall Street Journal reported. Cyprus's troika of would-be official creditors—the European Central Bank, European Commission and International Monetary Fund—is pressing Nicosia to raise its corporate tax by up to three percentage points from 10% now, the officials said.

President Nicos Anastasiades of Cyprus will ask Athens to hand over €2bn from its own bank recapitalisation package to rescue Cypriot banks with operations in Greece, say officials in Nicosia, the Financial Times reported. The unusual request comes as Cypriot officials desperately try to avert a so-called haircut of bank deposits held on the island as part of a proposed €17bn bailout being negotiated with the EU and International Monetary Fund.

International lenders would like Cyprus to raise its corporate tax and introduce a levy on capital gains and a financial transaction tax to ensure it can repay a euro zone bailout it asked for last year, euro zone officials said on Thursday, Reuters reported. Cyprus needs up to 17 billion euros (14.8 billion pounds) - almost as much as its annual gross domestic product - in emergency loans, mostly to recapitalise its oversized banking sector, hit by a Greek debt restructuring, but also to service debt and government expenses.

A troika of European and international auditors arrived in the Cypriot capital Wednesday, tasked with hammering out a tricky, multibillion euro bailout for the country, The Wall Street Journal reported. The delegation is expected to stay until Friday amid hopes that a final deal—which has been delayed for months—can be reached by the end of March, following last month's election of a new Cypriot president, conservative leader Nicos Anastasiades. The biggest hurdle remains the country's debt sustainability.

Cyprus, the next euro-zone country in line to receive a bailout, has agreed to submit to an independent review of the country's controls on money laundering, in a bid to ease the currency bloc's concerns about lending billions of euros to prop up Cypriot financial institutions, a popular destination for offshore cash, The Wall Street Journal reported. Pumping more capital into Cypriot banks will be a major part of the bailout, which euro-zone finance ministers said after a meeting Monday would be ready by the end of March.

European policymakers are split over how to handle a bailout of Cyprus, with Germany and some other countries pushing for bank depositors to bear part of the cost and many other member states worried such a move will cause a bank run, Reuters reported. Euro zone officials say momentum has built in recent days behind the idea of "bailing-in" Cypriot bank shareholders and depositors, although the specifics of how such an operation would be carried out have not been pinned down.

There is a "material and rising risk" that Cyprus will default on its sovereign debt, especially if the euro zone and International Monetary Fund do not come up with aid, rating agency Standard & Poor's said on Wednesday, Reuters reported.

For a second day in a row, the European Union's top financial official sought Tuesday to quash speculation that private bank depositors in Cyprus might be forced to take losses as part of a bailout deal - a suggestion that's fueled fears of large-scale withdrawals from the country's troubled banks, Bloomberg reported. The new head of the euro area's 17 finance ministers stoked concerns Monday about the security of uninsured private deposits in Cyprus when he declined to rule out such a step following repeated questions from reporters.