Headlines

European officials have been determined to mend the region's financial market after seeing it torn apart along national lines during the economic crisis. That effort suffered a blow with the radical surgery prescribed for Cyprus's banks as part of March's bailout deal, The Wall Street Journal Brussels Beat blog reported. The agreement will see large depositors in Cyprus's two big, internationally active banks absorb steep losses. Money transfers to and from the island are now sharply restricted.

Restructuring specialist Hilco is set to throw British entertainment retailer HMV a lifeline in a 50 million pound deal that will save 2,500 jobs, Reuters reported on a Sky News story. The deal, which could be struck as soon as Friday, will see HMV emerge from administration, Sky News said on its website, with the chain expected to be run by incumbent HMV executives together with newly-appointed Hilco executives. As part of the deal, Hilco will acquire about 130 HMV stores and all nine outlets operating under the Fopp brand, Sky News said.

According to Cyprian newspaper Fileleftheros, Cyprus Airways is about to fold. Because of the cutting of government funds the Cyprian airline company is facing bankruptcy, Fileleftheros reports. According to the newspaper, the Ministers for Traffic, Trade and Labor presented three scenarios about the future of the crippled company: the immediate shutdown of the corporation, the liquidation after the holiday season in summer or the continuing of the air traffic.

Egypt needs IMF money to stay afloat, but the international lender is demanding tough subsidy cuts from an already-embattled government, The Christian Science Monitor reported. President Mohamed Morsi is facing decision time on a national financial crisis that dwarfs the one Sadat faced 35 years ago. President Morsi's government recently announced a rationing plan for subsidized bread that it claims won't affect the poor.

Cyprus's bank restructuring, a condition for international aid it needed to stave off bankruptcy, will force the Mediterranean island to scramble for new ways to generate wealth, Reuters reported in an analysis. If it fails, international lenders may have to do what they wanted to avoid and which Germany and its northern European allies may baulk at - give Cyprus more money. Nicosia will get 10 billion euros (8.58 billion pounds) over three years from the euro zone and the International Monetary Fund.

Rising and volatile Italian government bond spreads caught domestic banks off guard and caused a credit crunch in the euro-zone's third-largest economy in late 2011, the International Monetary Fund concludes in a new study, The Wall Street Journal reported. Banks with lower capital levels and higher rates of nonperforming loans suffered the most, while Italy's sovereign borrowing costs reacted significantly to the scale of foreign ownership, said the technical working paper from Edda Zoli, a senior economist in the IMF's European department.

The European Union's banking regulator will decide over the coming months which bankers should have bonuses capped, raising hopes among lenders that the rules can be eased before they take effect in 2014, Reuters reported. The EU approved a law to cap bonuses at no more than fixed salary, rising to twice the salary if shareholders give their approval. The new law is in response to public anger at the size of bonuses, especially at banks that had to be rescued by taxpayer money at a time of general austerity in Europe.

Complaints about the dearth of lending by banks can be heard in small and midsized businesses up and down the country, and are raising concern not just within the Spanish government but also the European Central Bank in Frankfurt, the Financial Times reported. Spain’s economic crisis and the near-collapse of its banking sector last year have conspired to choke off the flow of bank loans – threatening to dry out the vast and versatile pool that dominates Spain’s private sector.

Belgium-based television services company Alfacam Group said on Wednesday that its bank lenders had decided to cancel its credit lines, leaving it scrambling to find a new investor, Reuters reported. Alfacam, which was granted creditor protection in October, said in a statement that its banks had decided not to extend suspension of debt repayments beyond March 31. The provider of broadcast services, TV studios and Europe's largest fleet of outside-broadcast vans signed a memorandum of understanding in December with its banks and Indian family-owned conglomerate Hinduja Group.

The finance chief of Spain's Catalonia region said that unless the European Union relaxes its austerity drive, the recession in Southern Europe may spread north, The Wall Street Journal reported. "It would be a pity if a more prudent macroeconomic policy would happen only after recession has arrived in the center of Europe. It would be better to anticipate," Andreu Mas-Colell, head of economics of Catalonia's regional government, said in an interview here last week. "EU policy makers should not underestimate the depressive effects of austerity in the south," he added.