* Cyprus bailout must make debt levels manageable - ECB's
* There should be no "across the board" bail-in of
* Germany, Finland, others want account holders to bear some
* Finance ministers to discuss the package on March 4
By Paul Carrel and Sakari Suoninen
FRANKFURT, Feb 27 Depositors in Cypriot banks
should not be forced to take losses across the board as part of
a euro zone rescue of Cyprus, ECB policymaker Benoit Coeure
said, but he did not rule out making the biggest depositors
share some of the burden.
Speaking at a Reuters Summit on the future of the euro zone,
Coeure said it was essential to ensure that Cypriot debt is
reduced to a manageable level and that the cost of the bailout
is fairly shared and not just footed by taxpayers.
The East Mediterranean island has requested up to 17 billion
euros ($22 billion) in aid from euro zone partners and the
International Monetary Fund because its banks' exposure to
neighbouring Greece wiped out their capital base and left the
country unable to fund itself.
Germany, Finland and some other euro zone countries are
pushing for bank depositors and other investors in Cyprus to
carry some of costs of a bailout, both to shield their taxpayers
and because of suspicions that wealthy Russians and others have
used the island to stash possibly illicit funds.
Opponents of such a move are concerned it could trigger a
bank run and further undermine trust in the euro zone,
rekindling the worst of the debt crisis. Investors were promised
that Greece, where private bondholders were made to accept
substantial losses, was a unique case.
Euro zone finance ministers will discuss the package for
Cyprus at a meeting in Brussels on Monday, with Germany and
France pressing for a decision by the end of March.
"All solutions should be explored," Coeure said. "I wouldn't
include a general bail-in of depositors as part of the solution
given the risks that it would pose for financial stability.
"So I think the possible bailing-in of depositors across the
board is not an option that can be envisaged given this hasn't
been done in any country. It would be entirely new and I don't
think it's time to make experiments now."
Pressed to say if that left open the possibility of a
narrower bail-in of deposits above the EU-guaranteed threshold
of 100,000 euros, he said: "There needs to be an appropriate
burden-sharing in the programme because we need to achieve debt
sustainability. But no bail-in across the board.
"I don't pre-judge any instruments because the vocabulary
matters and there are many ways to achieve burden-sharing."
Asked if that was his personal view or that of the ECB
board, Coeure said: "I'm pretty sure that (Mario Draghi) is
comfortable with the way I've phrased it. No bail-in across the
board of depositors."
Having bank account holders bear some of the costs is a
risky strategy not only because there is no precedent in the
previous bailouts in the euro zone debt crisis, but also because
it raises the risk of a run on Cypriot banks.
Cyprus, with a gross domestic product of around 17.5 billion
euros, has a bloated banking system with deposits that reached
more than 70 billion euros, although latest figures suggest that
amount fell in January.
Around a third of the deposits are from non-residents,
including many Russian and British businesses.
One proposal for having depositors foot the bill would
involve freezing any amounts above 100,000 euros with the total
held in an escrow account and used either to shore up the
capital of the banks or as collateral for loans.
Cyprus, which elected a new, conservative president on
Sunday, is adamantly opposed to the bailing-in of depositors or
bondholders, concerned that it will destabilise its already
shaky economy and undermine its business model.
But there may be no way to avoid such a move if the European
Central Bank, the IMF and the European Commission, together
known as the troika, agree that such a step is necessary to make
Cypriot public debt manageable.
"Any solution for Cyprus has to be based on a credible debt
sustainability analysis, meaning that we have to have the
numbers right, we need the programme to be credible from
inception," said Coeure.
"I'm not going to enter into the details, there will be a
discussion between the troika and the new government."