Cyprus Mail

Haircut battle due to kick off within weeks

By Angelos Anastasiou

A GRAND Chamber comprising 15 judges of the European Court of Justice (ECJ) will hear a number of appeals brought by Cypriot bank depositors, who lost their money in the March 2013 ‘haircut’ against the European Commission and the European Central Bank on February 2, 2016, the Sunday Mail has learned.

Alper Riza QC, the Turkish Cypriot barrister who is an occasional contributor to Cyprus Mail and Sunday Mail, along with Christopher Paschalides, solicitor, and Antonis Paschalides, of the Cyprus Bar, will represent the appellants in Luxembourg.

Riza said the appeal is of “huge importance” to many Cypriot depositors who lost billions in the 2013 ‘haircut.’

“The case is also of general importance in EU law, and the reason why the appeals will be heard by the Grand Chamber of the ECJ comprising 15 top judges is because previous case law is unclear whether the European Commission and the ECB act as EU institutions or in a free-standing capacity when performing their tasks under the 2012 European Stabilisation Mechanism Treaty,” he said.

In June 2012 Cyprus applied to the EU for financial assistance to recapitalise Bank of Cyprus and Cyprus Popular Bank which, like many banks in Europe, faced financial difficulties owing to the fall-out from the Greek financial crisis and the EU’s dismal handling of that crisis resulting in the ‘haircut’ of Greek government bonds, causing the two banks huge losses.

The EU initially agreed to provide bank recapitalisation assistance as it was necessary to safeguard the Eurozone, but in March 2013 the European Commission and the European Central Bank relented and set new conditions for providing financial assistance that involved depriving depositors of Cyprus Popular Bank (Laiki Bank) of all their savings – except the government-guaranteed amount of €100,000 – and in the case of Bank of Cyprus of 47% of uninsured deposits.

The EU’S change of mind was unprecedented and unexpected because bank deposits are regarded as sacrosanct. In the banking crisis of 2008 the British government recapitalised Royal Bank of Scotland in the sum of £80 billion to protect depositors. The EU was not prepared to assist depositors in Cyprus with €7 billion because the International Monetary Fund (IMF) was not satisfied Cyprus could sustain such a debt.

The appellants’ appeals are on the simple ground that the deprivation of deposits – ‘haircut’ – was unlawful because there was no law in the EU or Cyprus in force authorising such a ‘haircut’ at the time, and that Cyprus was persuaded by the European Commission and the ECB to pass such a law on pain of having monetary liquidity cut off and a resultant disorderly and catastrophic exit from the euro zone.

The European Commission and the ECB had in mind that the banks would remain closed and that the appellants would be unable to move their funds to safer institutions in order to ensure that the conditions they required of Cyprus were effective to close the debt-sustainability gap of €7 billion that the IMF insisted was necessary. The IMF is not strictly a member of the European Stabilisation Mechanism (ESM) – the body responsible for providing financial assistance in the Eurozone – and its role in this affair was of concern at the time.

The appellants’ case is that law making in such circumstances is a perversion of the rule of law, because Cyprus was required to pass laws by EU institutions under duress of circumstances that were not authorised by EU law at the time, and because individual citizens did not have access to their deposits and the right to move their funds before the law was passed.

The European Commission and the ECB’s primary argument is that their actions are beyond the reach of European Union law because the ESM is a separate entity from the EU under international law.

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