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House passes insolvency bill, paves way for ECB to buy €500m bonds

By George Psyllides

AFTER weeks of heated debates, parliament on Saturday approved the insolvency framework, paving the way for resumption of the island’s bailout adjustment programme.

The framework passed with the 33 votes of ruling DISY, as well as DIKO and EDEK.

AKEL, EVROKO, the Green party, the Citizens’ Alliance, and independent MP Zaharias Koulias voted against.

It was made possible after DISY agreed to support two EDEK amendments concerning protection of non-viable borrowers and bank surcharges and so-called unfair terms included in loan agreements.

The vote was preceded by intense backstage trading.

“From the onset, EDEK’s intention was to protect our vulnerable fellow citizens,” MP Nicos Nicolaides said.

He added that the amendments created the conditions for parliament to fulfil its role and objective, to protect vulnerable people and support the financial system.

Approval of the framework came after weeks of discussions, which saw the derailment of the island’s adjustment programme.

The delay in passing the insolvency framework, seen as a safety net for vulnerable groups against property repossessions, had prompted the opposition to suspend the foreclosures law.

The suspension caused the interruption of the island’s bailout programme since having effective repossession legislation in place had been included in the terms.

The International Monetary Fund has withheld some €85m pending compliance.

The interruption has also made Cyprus ineligible for the European Central Bank’s quantitative easing programme.

Getting the programme back on track would allow €500m of Cypriot bonds to be bought by the ECB.

On Friday, it also emerged that the ECB had warned that it may reconsider its decision to continue accepting Cypriot securities as collateral for monetary policy operations if Cyprus delayed implementation of the foreclosures legislation further.

As long as the long-term sovereign rating of the Republic is below BBB-, the ECB exceptionally accepts Cypriot securities as collateral in exchange for liquidity through the Eurosystem’s monetary policy operations, under the condition that the island complies with the programme and has a positive evaluation.

DISY chief Averof Neophytou suggested that the approval of the framework would allow Cyprus to tap international markets with favourable interest rates, not seen even during the heydays of the economy.

“If everything goes well today, with the responsibility displayed by opposition parties, and the mild tones, we will succeed in tapping the markets in a few weeks,” Neophytou said.

His DIKO counterpart stressed in a tweet that the framework protected the people from the banks.

“Those who vote against it, not us, ought to explain themselves to the people,” Nicolas Papadopoulos said.

However, his view was not shared by main opposition AKEL.

AKEL leader Andros Kyprianou said it fell short of its objective.

“In our view there is no safety net to protect the people,” Kyprianou said.

He said he had no doubt that banks would appeal the few positive provisions included in the legislation, whose aim was to serve the banks’ interests, ignoring the consequences on the people.

Kyprianou also warned that foreign funds, including some with Turkish interests, would swoop in and buy Cypriot properties.

The response came from DISY MP Prodromos Prodromou who pointed out that the current system offered no protection whatsoever.

Prodromou also suggested that the delay in passing the legislation only worsened the situation for crisis-stricken individuals who had no options.

“Has anyone measured how bad it has become. The figures will scare you,” he said.

To those who sought to put all the blame and the burden on banks, Prodromou pointed out that following the March 2013 bailout, the shareholders were people whose deposits had been seized and the taxpayer, in the case of co-ops.

“These people put in money without being asked so that the Central Co-operative Bank could function,” he said.

Under the bailout, Cyprus had to shut down its second-biggest lender, Laiki Bank. Bank of Cyprus, the biggest, seized almost half of deposits over €100,000 to recapitalise. It gave equity in return.

Co-ops were recapitalised with €1.5bn in taxpayer money and are now owned by the state.

“We will monitor enforcement and intervene if necessary,” Prodromou said.

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Source: Cyprus News Agency

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