Finance&Economics: Q&A: Cyprus deal

Q&A: Cyprus deal

BBC

Cyprus has agreed a deal with the European Union and the International Monetary Fund (IMF) to secure a 10bn euro bailout. It came just hours before a deadline set by the European Central Bank (ECB), and after a week of uncertainty about the future of Cyprus in the eurozone.

What has been agreed?

Cyprus has agreed to a significant restructuring of its banking sector, along with other measures such as tax rises and privatisations.

The measures are designed to raise billions towards the bailout, but protect bank customers with deposits of less than 100,000 euros.

Cyprus's second largest bank - the troubled Laiki Bank - will be closed down and deposits above 100,000 euros moved into a "bad bank".

It is likely that customers will lose a significant amount of these deposits, though it is not clear how much.

Deposits of less than 100,000 euros will be moved into Bank of Cyprus, the country's biggest bank, which is being significantly restructured.

Deposits at Bank of Cyprus of more than 100,000 euros are being frozen and are also at risk of being raided as part of the restructuring.

The deal means that depositors with more than 100,000 euros in these banks are likely to see significant losses once the restructuring is complete.

What about the bank levy?

In the original EU-IMF deal agreed a week ago, all customers of Cypriot banks were to face a one-off tax on their deposits, starting at 6.75% for the smallest deposits.

That was designed to raise 5.8bn euros towards the cost of the bailout. But it proved hugely unpopular with the Cypriot public and was voted down by Cyprus's parliament.

There is no bank levy in the new deal, but the bank restructuring measures mean deposits over 100,000 euros will effectively be used to pay the bulk of the 5.8bn-euro bill.

The measures cannot be voted down by Cyprus's parliament, as new bank restructuring laws were agreed and voted through by parliament last week.

Was Cyprus not doing quite well before the global financial crisis?

Yes. The IMF described the country's economic performance before 2008 as a "long period of high growth, low unemployment, and sound public finances".

There was a recession in 2009 but it was the mildest in the eurozone. However, two interlinking factors have brought Cyprus close to default - the deteriorating government finances and the country's struggling banks.

So what went wrong?

During the good years Cyprus built up what the IMF calls "vulnerabilities". There was rapid growth in credit, the banks made many loans to Greece and there was a property market boom.

The banks are central to this story. They grew rapidly. By 2011, the IMF reported that their assets - which include all the loans they have made - were equivalent to 835% of annual national income, or GDP. A chunk of that is down to foreign-owned banks, but those that are Cypriot had made loans to Greek borrowers worth 160% of Cypriot GDP.

There have been losses on the loans to private borrowers because of the depression that has hit the Greek economy. And the value of the debts owed by the Greek government was cut in a debt relief exercise undertaken last year. It might have helped Greece, but the Cypriot banks were hit.

What does that mean for the government finances?

Many countries have rescued their banks in the financial crisis - recapitalising them, in the jargon. It means governments put in money and get shares in return. It is controversial, but governments have taken the view that it is better for the economy than allowing important banks to fail. However, Cyprus cannot afford the recapitalisation to the extent that the banks need.

The government finances have been further weakened by the slow economic growth and, more recently, decline in the eurozone which have hit Cyprus too. Growing doubts in the financial markets about the government's financial position have made it almost impossible for Cyprus to borrow.

Why was the bank levy considered?

When countries get an international bailout, they are often expected to raise funds themselves, by raising taxes or selling state-owned assets.

The levy on bank deposits was designed to play the same role. It was intended to reduce the size of the bailout and therefore the amount of new debt Cyprus had to take on. But there is almost certainly a political aspect, too. In the eurozone, there are concerns about money-laundering in Cyprus and the presence of large amounts of Russian-owned money in the banks. Germany is reputed to be especially unhappy about the idea of using European taxpayers' money to rescue them.

Experts say the decision to target ordinary savers came about because Cypriot banks have fewer private bondholders than banks in other eurozone countries. In the Greek bailout, it was private bondholders who had to take a "haircut" - a slice out of their investment.

After the deal provoked outrage in Cyprus, the parliament promptly voted against it, and it is increasingly seen as a blunder by European and Cypriot authorities.

Current Affairs: EU prepares to blow final whistle on Spain's debt-ridden football clubs

EU prepares to blow final whistle on Spain's debt-ridden football clubs

The Guardian

Deportivo among teams facing extinction if competition authorities force Spanish officials to collect taxes

It is the powerhouse of global football, home to its greatest players and a World Cup-winning national team, but Spain's soccer bubble looks set to explode as European authorities prepare to halt public funding of debt-ridden clubs.

In a move that threatens to provoke the partial collapse of a football system built on unsustainable piles of debt, competition authorities in Brussels want Spain's government to explain why it has allowed clubs to build up vast, unpaid tax and social security debts.

With many clubs in the top two divisions already having trouble paying bank debts totalling some €3.5bn (£3bn), the move would likely force some clubs into liquidation. Historic names such as Deportivo de La Coruña or Racing Santander could simply disappear. Other top clubs, such as Valencia, will have to sell players and face years of decline.

Indignant MEPs are already demanding to know why Spain is happy to request €40bn in aid from eurozone taxpayers for its banks while allowing the clubs to build up a tax debt of €692m.

"This is unfair since all other Spanish taxpayers, as well as the other European football clubs, must, of course, be up to date with their tax payments," said Willy Meyer, a Spanish MEP for the United Left coalition, in a recent question to the competition commissioner, Joaquín Almunia. Meyer pointed out that while clubs pay multimillion-euro salaries to star players, the cash-strapped government of Mariano Rajoy has imposed cuts on public services.

"It is incomprehensible that while taxes such as VAT are being increased and hospitals and public companies are being privatised as a means of generating short-term resources, these private, recreational bodies are receiving preferential tax treatment," he said.

Other European soccer clubs are also crying foul. "This beggars belief. We pay hundreds of millions of euros to keep Spain out of the shit and then they let the clubs off their debts," Uli Hoeness, the president of the German side Bayern Munich, complained when debt figures were made public last year.

A spokesman for Almunia said a formal investigation – similar to one looking at public subsidies to Dutch soccer clubs – must wait until the Spanish government has replied to its inquiries.

Analysts warn that action from Almunia to force Spain's tax authorities to recover debts will expose the chronic financing problem in Spanish soccer.

Professor José María Gay de Liébana, of the University of Barcelona, said reckless lending – especially by former savings banks controlled by local politicians – had created a bubble that must eventually burst.

"When people ask me what clubs could be in danger, I reply with the list of the only clubs that are not in any kind of danger. They are Barcelona, Real Madrid and Athletic Bilbao," said Gay de Liébana. "Hoeness is, basically, right. If I don't pay my taxes, then the authorities come after me. But that doesn't happen to the clubs, which are not treated like other companies."

Twenty-two first- and second-division clubs are in insolvency proceedings or have been in recent years. Several are thought to be struggling to survive strict debt-repayment plans imposed by creditors. They include former league title-winners such as Deportivo de la Coruña and a long list of historic clubs such as Zaragoza, Racing Santander, Mallorca, Albacete and Betis.

Deportivo – semi-finalists in the Champions League in 2004 – had been allowed to build up a tax debt of €96m, a report to an insolvency court this week revealed. "The real cause of the insolvency is a complete lack of realism in management, taking on spending and investment that is absolutely beyond the club's economic possibilities," the club's administrators wrote.

Indirect funding of clubs via publicly owned TV stations and loan guarantees from regional governments are expected to come under scrutiny in Brussels.

Valencia, one of Spain's top clubs, passed temporarily into public hands this year after it failed to pay back a loan guaranteed by the regional government. It is now in the hands of the Bankia bank, but this was nationalised after it ran up €19bn in losses last year, meaning the club – which has had to stop work on a vast, half-built stadium in the city – is now in effect owned by Spanish taxpayers.

Two other clubs, Elche and Hercules, are also part-owned by Valencia's regional government, which guaranteed loans that they failed to pay back.

"Is it the European commission's intention, in rescuing Spanish banks, to allow the practice of granting bank loans at subsidised rates to clubs in the Spanish professional football league – which is a form of favouritism – to continue?" the Italian MEP Mario Borghezio asked in a parliamentary question.

Almunia's commission confirmed that it had asked Spain to provide it with figures on clubs' public debts.

"The commission agrees that, under the state aid rules, tax and social security debts of professional football clubs must not be treated differently from similar debts of other economic actors," Almunia said. Rajoy has ordered tax authorities to tighten control of clubs and the sports minister, José Ignacio Wert, says debt has begun to fall.

Several clubs, including Deportivo de La Coruña, have seen television or football pools income embargoed. The debt has been reduced since early last year, but progress is slow.

"This cannot be sorted out overnight," said one source close to the Spanish tax authorities.

"Soccer is a very highly charged affair. If you go after a club too much, then the supporters may rise against you," said Gay de Liébana.

He believes that is why authorities are targeting Deportivo de La Coruña rather than a highly indebted but well-supported club such as Atlético Madrid. "Deportivo fans are not going to block the streets of Madrid," he said.

As clubs tighten their belts, players will be sold and the quality of soccer in Spain will likely fall. "Talent will flee to the Premier League in Britain or elsewhere," said Gay de Liébana.

The Spanish case and the Brussels inquiry into €10m of public aid to several Dutch clubs, including PSV Eindhoven, threatens to spill over in to other countries.

"If you start asking Italian and French clubs whether they are paying market rents for municipally owned stadiums, we will get into a very big tangle," said Gay de Liébana.

Current Affairs: Profile: Pope Francis

Profile: Pope Francis

BBC

Born in Argentina, Pope Francis is the first Latin American to lead the Roman Catholic Church, as well as the first Jesuit.

"It seems my brother cardinals went almost to the end of the world [to choose a pope]," he told the crowd in St Peter's Square in his first address, a joke which belied his image as the cardinal who never smiles.

Up until 13 March, he was Cardinal Jorge Mario Bergoglio of Buenos Aires.

Pundits did not see him as a favourite for the job of succeeding Benedict XVI and his advanced age - at 76, he is just two years younger than Benedict at the time of his election in 2005 - may surprise those expecting a younger man as the 266th pope.

However, he appeals to both Church conservatives and reformers, being seen as orthodox on sexual matters, for instance, but liberal on social justice.

"We live in the most unequal part of the world, which has grown the most yet reduced misery the least," he was quoted as saying by the National Catholic Reporter at a gathering of Latin American bishops in 2007.

"The unjust distribution of goods persists, creating a situation of social sin that cries out to Heaven and limits the possibilities of a fuller life for so many of our brothers."

Humble lifestyle

He was born on 17 December 1936 in Buenos Aires, of Italian descent.

According to his official Vatican biography, he was ordained as a Jesuit in 1969 and went on to study in Argentina and Germany.

A bishop from 1992, he became Archbishop of Buenos Aires in 1998, and at the 2005 conclave was seen as a contender for the papacy.

His election took many by surprise in his home city, where many had thought his age ruled him out, the BBC's Marcia Carmo reports from there.

But any surprise soon gave way to the jubilant blaring of car horns on the streets.

As Cardinal Bergoglio, his sermons always had an impact in Argentina and he often stressed social inclusion, indirectly criticising governments that did not pay attention to those on the margins of society, our correspondent says.

Francesca Ambrogetti, who co-authored a biography of him, told Reuters news agency that part of his public appeal lay in his humble lifestyle.

"His lifestyle is sober and austere," she said.

"That's the way he lives. He travels on the underground, the bus, when he goes to Rome he flies economy class."

In Buenos Aires, he lived in a simple flat in the building of the Archdiocese, next door to the cathedral.

When in Rome, BBC Latin America analyst Eric Camara writes, he often preferred to keep his black robe on, instead of the cardinal's red and purple vest he is entitled to wear.

He is also said to have re-used the cardinal's vest used by his predecessor.

'Balancing force'

According to Ms Ambrogetti, he is a moderate in all things.

"He is absolutely capable of undertaking the necessary renovation without any leaps into the unknown," she said.

"He would be a balancing force. He shares the view that the Church should have a missionary role, that gets out to meet people, that is active.... a church that does not so much regulate the faith as promote and facilitate it."

However, it appears that few who know him doubt his conservative credentials.

This is how Monsignor Osvaldo Musto, who was at seminary with him, described him in a BBC News article back in 2005: "He's as uncompromising as Pope John Paul II, in terms of the principles of the Church - everything it has defended regarding euthanasia, the death penalty, abortion, the right to life, human rights, celibacy of priests."

But for the Church establishment, it will be a novelty to have a Jesuit in charge: members are supposed to avoid ecclesiastical honours and serve the Pope himself.

Junta questions

One issue he may have to contend with is his role under the Argentine military dictatorship of 1976-1983, and particularly the abduction of two Jesuits whom the military government secretly jailed for their work in poor neighbourhoods.

The two men survived five months of imprisonment and their superior has been accused of withdrawing protection from them. It is a charge his office flatly denied.

The new pope's supporters say that, on the contrary, he helped dissidents escape from the junta.

During Argentina's economic crisis of 2001, he protested at police brutality during the unrest which saw President Fernando de la Rua swept from power.

A more immediate issue for the Vatican is the state of the new pope's health.

For decades, he has lived with only one functioning lung, although he is said to be in good shape.

He is said to be a football fan, supporting Buenos Aires team San Lorenzo de Almagro.