EU says Cyprus legislation clashes with bailout

AP News
Posted: Sep 10, 2014 3:49 PM
EU says Cyprus legislation clashes with bailout

NICOSIA, Cyprus (AP) — The European Union warned Cyprus Wednesday that it may be flouting the terms of its multibillion-euro rescue package after the country's parliament approved legislation softening a crucial foreclosures law.

Though legislators have approved a law that significantly cuts the time banks need to seize and sell off property in order to tackle a huge number of bad loans, they also backed several other measures that give additional cover to borrowers. Those measures include writing off the outstanding amount of a loan once property is foreclosed on and allows borrowers with loans of up to 350,000 euros ($450,000) to seek court protection for their homes and businesses.

Cypriot President Nicos Anastasiades held back from signing into the law the measures contained in six pieces of legislation that are seen as being at odds with the rescue deal's terms. He said he has asked the Supreme Court to rule on the constitutionality of four of those pieces.

Anastasiades said that he would decide on how to deal with the unsigned legislation in a way to "safeguard stability and to avoid developments that would cast the country's credibility and banking system into doubt."

Around half of all loans in Cyprus are considered bad — believed to be the highest ratio in Europe — and the general consensus has been that the foreclosures law needed an overhaul.

Anastasiades and his cabinet had argued that additional protection for borrowers wasn't necessary because adequate safeguards for vulnerable borrowers were already incorporated in the main foreclosures law.

But his party, the right-wing DISY, was overrun in parliament as the center-right DIKO party sided with the opposition. They insisted that borrowers unable to pay off loans after losing jobs or having their salary slashed needed additional protection to help them keep their homes in the face of the banks' drive to recoup their money.

Simon O'Connor, a spokesman at the European Commission, said that some of those additional measures "aren't compatible" with the bailout's terms.

He said euro area members will hear how Cypriot officials plan to deal with this at a meeting this Friday of the currency zone's finance ministers.

Cypriot authorities worry the legal wrangle could throw a spanner in the country's fragile recovery after five straight positive reviews of its rescue program.

The EU and the International Monetary Fund granted Cyprus 10 billion euros ($12.9 billion) in rescue money in March last year and insisted on the seizure of huge chunks of uninsured deposits in the country's two biggest banks.

Finance Minister Harris Georgiades said he had warned lawmakers that approval of the additional measures would trigger creditors' disapproval, making it more difficult for Cyprus to get its hands on the next batch of bailout cash it is due to get. But he said there's enough money in state coffers to avoid an imminent crisis.

Opposition parties criticized Anastasiades for opting to clash with parliament.