* Cyprus says bank deposits sacrosanct
* Lenders start new contacts to craft bailout deal
* Government wary on central banker's deposit levy idea
By Michele Kambas
NICOSIA, March 6 Cyprus insisted on Wednesday
that people holding money in its banks - many of them Russian
and British - must not take a hit in efforts to repair the
island's shattered finances.
Attempts by Cyprus to secure aid have been complicated by
concerns about how the island could afford to pay back a debt
burden which could potentially reach 17 billion euros ($22
billion) - almost the size of its economy, one of the euro
While euro zone finance ministers have pledged to agree a
bailout by the end of this month, little detail has emerged on
how the rescue will be financed.
Representatives from the "troika" of lenders - the
International Monetary Fund, the European Central Bank and the
European Commission - started new contacts in Nicosia on
Wednesday to clinch a deal.
Ideas for making Cyprus's debt sustainable have ranged from
privatisations and securitising potential natural gas reserves
to more extreme scenarios - ruled out by Nicosia - of depositors
in Cypriot banks helping to pay for the cost of the rescue.
German officials, backed by the Netherlands and Finland,
have pushed for depositors in Cypriot banks, which include many
Russian and British business people, to help pay in a process
known as a "bail-in".
Nicosia and other euro zone nations say such a move could
threaten economies throughout the bloc.
"We have repeated in the most categorical manner that this
is not an issue for discussion. It would be catastrophic for
Cyprus, and for the euro zone" said finance minister Michael
"I believe that message is gradually getting through, even
to those who may have considered it a possibility."
While lenders and Cyprus grapple with ideas on how to
balance the books, a suggestion by the Cypriot Central Bank
governor of a temporary levy on capital gains from deposits
appeared to get short shrift from authorities.
Central bank governor Panicos Demetriades, who is also a
member of the Governing Council of the ECB, told the Wall Street
Journal in an interview published on Tuesday that Cyprus could
install a special levy on capital gains from bank deposits to
help finance the restructuring of its banking sector.
Sarris, appointed by Cyprus's new conservative President
Nicos Anastasiades after winning power in a February 24
election, distanced himself from the comments.
"The cornerstone of confidence in the banking system is the
integrity of deposits," Sarris said, referring to an unwavering
policy throughout Europe during the debt crisis. "So with that
in mind, one has to look at whether it could have a negative
Demetriades was quoted as suggesting a "special solidarity
levy" for Cyprus would only be applied for three years and could
generate as much as 150 million euros a year.
Cypriot banks, badly burnt when their holdings of Greek
government debt were written down in early 2012, need anything
between 6 and 9 billion euros to recapitalise, according to an
independent asset review. In addition, authorities need 7.0-7.5
billion euros for general government operations and to finance