UPDATE 1-Cyprus has no intention of leaving euro - president

Fri Mar 29, 2013 4:27am EDT

NICOSIA, March 29 (Reuters) - Cyprus has no intention of leaving the European single currency, the island's president said on Friday, assuring Cypriots the situation was "contained" in the wake of a tough bailout deal with the European Union.

Conservative leader Nicos Anastasiades spoke a day after banks reopened their doors following an almost two-week shutdown to prevent a run on deposits by panicked Cypriots and wealthy foreign depositors as the east Mediterranean island flirted with bankruptcy.

"We have no intention of leaving the euro," Anastasiades told a conference of civil servants in the capital, Nicosia.

Anastasiades, barely a month in the post, criticised Cyprus's partners in the 17-nation currency bloc, accusing them of making "unprecedented demands that forced Cyprus to become an experiment."

For the first time in Europe's handling of its debt crisis, bank depositors have been forced to bear some of the cost of a rescue plan intended to keep the country solvent and in the euro zone.

"We have averted the risk of bankruptcy," Anastasiades said. "The situation, despite the tragedy of it all, is contained."

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Italy's president seeks way out of political deadlock

Fri Mar 29, 2013 4:56am EDT

* Napolitano meets parties for consultations on Friday

* Centre-left bid to form government blocked

* Speculation grows that government could be led by outsider

By James Mackenzie

ROME, March 29 (Reuters) - Italian President Giorgio Napolitano meets political leaders on Friday in a bid to break a month-old stalemate after an election left no party able to form a government.

Centre-left leader Pier Luigi Bersani, who won the biggest share of the vote in the February 25 vote but fell short of a majority, told Napolitano on Thursday he had failed to secure enough support from rival parties to form a government.

The 87-year-old Napolitano, whose own term ends in mid-May, said he would personally meet representatives from the main parties to assess what options remain to prevent an early return to the polls.

The deadlock in Italy, the euro zone's third largest economy, comes as the Cyprus banking crisis has revived fears of renewed financial market turmoil that could threaten the stability of the currency bloc.

After five days of talks, Bersani failed to secure a deal with either Berlusconi's centre-right bloc, the second-largest force in parliament, or ex-comic Beppe Grillo's 5-Star Movement, which holds the balance of power.

The centre-left leader rejected Berlusconi's demand that he be allowed to decide Napolitano's successor as head of state, and Grillo's populist group maintained its refusal to support a government led by any of the big parties it blames for Italy's social and economic crisis.

Napolitano's options now include appointing a figure from outside politics to lead a technocrat government like that of outgoing Prime Minister Mario Monti or a cross-party alliance backed by the big parties.

Among possible candidates are Fabrizio Saccomanni, the widely respected director general of the Bank of Italy, the head of the constitutional court Franco Gallo or former prime minister Giuliano Amato.

Napolitano meets representatives from former prime minister Silvio Berlusconi's People of Freedom (PDL) party at 1000 GMT, before seeing the anti-establishment 5-Star Movement and finally Bersani's Democratic Party (PD) in the evening.

CRISIS

The political gridlock has fed growing worries about Italy's ability to confront a prolonged economic crisis that has left it in deep recession for more than a year, with a 2-trillion-euro public debt and record unemployment, especially among the young.

Rumours have been circulating for days that ratings agency Moody's is preparing to cut its rating on Italy's sovereign debt, which is already only two notches above "junk" grade, partly due to the uncertain political outlook.

The immediate pressure from the bond markets has been taken off during the Easter break but failure to make progress in securing an agreement could lead to new turbulence next week after a steady rise in Italy's borrowing costs in recent days.

However the prospects appear slim of appointing the kind of government capable of turning around an economy that has been in decline for more than a decade, with deep-rooted problems ranging from corruption to suffocating bureaucracy.

Napolitano has made clear that he does not want Italy to go back to new elections immediately, not least because the widely criticised election law is likely to lead to a similar inconclusive result.

However even a so-called "president's government" led by a political outsider, would need the backing of parliament, which may be difficult to secure given the deep divisions which remain between the parties.

Many are turning their thoughts towards new elections, with Berlusconi's centre-right bloc confident that the momentum created by the 76-year-old billionaire's surge in the final weeks of the last election campaign will continue.

"We're not afraid of going back to vote," Daniela Santanche, one of Berlusconi's most faithful allies told the daily La Repubblica. "The opinion polls are telling us that we'd win and the PD would lose 150 deputies," she said.

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UPDATE 2-Cyprus has no intention of leaving euro - president

Fri Mar 29, 2013 5:38am EDT

* Cypriot leader says risk of bankruptcy contained

* Hits out at Cypriot, European banking authorities

* Says capital controls to be gradually lifted, no time frame

By Michele Kambas

NICOSIA, March 29 (Reuters) - Cyprus has "contained" the risk of bankruptcy in the wake of a tough rescue package with the European Union and has no intention of leaving Europe's single currency, the island's president said on Friday.

Conservative leader Nicos Anastasiades assured Cypriots and wealthy foreign depositors that restrictions on bank transactions, imposed this week, would gradually be lifted, but gave no time frame.

He hit out at banking authorities in Cyprus and Europe for pouring money into a crippled Cypriot bank that now faces closure under the terms of a 10 billion euro ($13 billion) bailout plan that averted the immediate risk of financial meltdown.

"How serious were those authorities that permitted the financing of a bankrupt bank to the highest possible amount?" Anastasiades said during a speech to civil servants in the capital, Nicosia.

"I don't want to say more," he added. "Now is not the time to say who bears more or less of the blame."

Anastasiades clinched the last-ditch bailout in Brussels five days ago, but has faced a backlash from Cypriots angry at the price that came with it - the winding down of the island's second-largest bank, Cyprus Popular Bank or Laiki, and a raid on deposits over 100,000 euros that could spell the end of Cyprus as a hub for offshore finance.

The country faces steep job losses and a prolonged and deep recession.

"EXPERIMENT"

The president, barely a month in the job and wrestling with Cyprus's worst crisis since a 1974 war split the island in two, accused the 17-nation euro currency bloc of making "unprecedented demands that forced Cyprus to become an experiment".

But he added: "We have no intention of leaving the euro. In no way will we experiment with the future of our country."

He said the immediate danger of national bankruptcy had been averted, and that, "The situation, despite the tragedy of it all, is contained."

Warnings of a stampede at banks when they reopened on Thursday proved unfounded.

For almost two weeks, Cypriots were on a ration of limited withdrawals from bank cash machines. Even with banks now open, they face a regime of strict restrictions designed to halt a flight of capital from the island.

The move is unprecedented since euro coins and banknotes came into circulation in 2002, and flies in the face of the bloc's founding principle of the free movement of money and goods.

Cyprus's difficulties have sent jitters around the fragile single European currency zone.

The imposition of capital controls has led economists to warn that a second-class "Cyprus euro" could emerge, with funds trapped on the island worth less than euros that can be freely spent abroad.

"The temporary restrictive measures adopted concerning economic transactions will be gradually eased until we can return to normal," Anastasiades said.

Under a government decree, the capital controls are intended to last for seven days.

Foreign Minister Ioannis Kasoulides said on Thursday they could last "about a month", but economists warn it could be years before confidence in the Cypriot economy bounces back enough to lift the restrictions.

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Cyprus banks reopen, under tight controls

NICOSIA, March 28 | Thu Mar 28, 2013 6:01am EDT

NICOSIA, March 28 (Reuters) - Banks in Cyprus opened their doors on Thursday for the first time in almost two weeks, with tight controls on transactions to prevent a run on deposits after the island was forced to accept a stringent EU rescue package to avert bankruptcy.

In central Nicosia, queues of at least a dozen people had formed outside branches of the country's two biggest lenders, Bank of Cyprus and Cyprus Popular Bank, also known as Laiki.

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Italy economy minister knows nothing about possible rating cut

ROME, March 28 | Thu Mar 28, 2013 6:22am EDT

ROME, March 28 (Reuters) - Italian Economy Minister Vittorio Grilli said on Thursday he had no knowledge of any imminent decision by Moody's to cut Italy's sovereign debt rating.

Fitch cut Italy's rating this month and market rumours have been swirling for days that fellow agency Moody's, which has a negative outlook on Italy, is poised to follow suit.

"I have no news about that," Grilli told reporters in parliament.

Moody's rates Italy Baa2, two notches above "junk" grade.

Grilli said he hoped that moves by the government to start to pay back state sector debts to private firms would improve judgments on Italy even though they will increase the budget deficit and debt.

Bart Oosterveld, managing director of sovereign risk at Moody's, told Reuters on Wednesday that the outcome of Italy's attempts to form a government following last month's inconclusive election would have implications for its credit profile.

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Junior partner of Italy's Bersani rejects deal with Berlusconi

ROME, March 28 | Thu Mar 28, 2013 6:34am EDT

ROME, March 28 (Reuters) - The junior partner in Italy's centre-left alliance will not join a government that includes former prime minister Silvio Berlusconi or his People of Freedom (PDL) party, an official said on Thursday after talks between parties following a deadlocked election.

"No matter what, we will be against any form of government that contains in its majority the PDL or Berlusconi," Gennaro Migliore, the lower house leader of the Left Freedom Ecology (SEL) party told a reporters.

SEL is the junior partner of the centre-left alliance led by Pier Luigi Bersani, who is due to report whether he has enough support to form a government this week. Bersani has so far resisted an agreement with his traditional centre-right rivals, and has been rejected by newcomers, the 5-Star Movement.

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Italy's 5-yr debt costs rise to highest since Oct 2012

MILAN, March 27 | Wed Mar 27, 2013 6:26am EDT

MILAN, March 27 (Reuters) - Italy had to pay its highest yield since October 2012 to sell a new five-year bond at an auction on Wednesday as worries over the country's political stalemate weighed on investors' sentiment.

The treasury sold 3.91 billion euros of the new bond maturing June 2018 at a rate of 3.65 percent, up from 3.59 percent it paid on similar paper at a sale on Feb. 27, two days after Italy's inconclusive national election.

Rome also sold 3 billion euros of 10-year bonds with a yield of 4.66 percent, at the lowest level since January 2013, down from 4.83 percent at an end-February sale.

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UPDATE 1-Weak industry, exports push UK towards another recession

Wed Mar 27, 2013 6:34am EDT

By Olesya Dmitracova and Kate Holton

LONDON, March 27 (Reuters) - Sharp falls in industrial production and exports shrank Britain's overall output at the end of 2012, data confirmed on Wednesday, pushing the economy to the brink of a "triple-dip" recession.

The Office for National Statistics said that gross domestic product dropped 0.3 percent on the quarter in the October-December period. Compared with a year earlier, GDP grew 0.2 percent, slightly less than estimated earlier.

Separate fourth-quarter current account data showed that Britain's deficit with the rest of the world stood at 14.037 billion pounds ($21.3 billion), overshooting forecasts.

The already weak pound fell further after the releases.

"The current account figures show us that we're still terrible at exporting," said Alan Clarke, economist at Scotiabank. "I think the message is that while the UK's overseas export markets are in recession, a weaker pound isn't going to help much."

The economic contraction compared with the previous quarter was spurred by a 2.1 percent decline in industrial production - the biggest fall since the first quarter of 2009 - and a 2 percent slump in exports.

Wednesday's GDP figures showed that Britons' disposable income shrank 0.1 percent in real terms in the fourth quarter, but household spending help up, rising 0.4 percent. The household savings ratio fell to 6.7 percent.

If the economy shrinks again in 2013's first quarter, Britain will slip into its third recession since entering one in 2008, fuelled by the financial crisis.

News on the first quarter of 2013 has been mixed, with a sharp fall in manufacturing output in January but strong survey data on the dominant service sector in February. Analysts warn that the current spell of cold weather and snow could be enough to tip the fragile economy into recession.

Its fortunes will become clearer when the ONS publishes its index of services data for January on Thursday.

The latest economic forecasts by the independent Office for Budget Responsibility, used by the government, showed last week that Britain will eke out meagre 0.6 percent growth this year - half that it predicted only a few months ago.

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WRAPUP 3-Cyprus readies capital controls to avert bank run

Wed Mar 27, 2013 6:37am EDT

* Cyprus preparing capital controls

* Minister says controls to last weeks

* Russia says healthy banks should not suffer

* Banks remain closed until Thursday

By Michele Kambas and Costas Pitas

NICOSIA, March 27 (Reuters) - Cyprus is finalising capital control measures on Wednesday to prevent a run on the banks by depositors anxious about their savings after the country agreed a painful rescue package with international lenders.

Cypriots have taken to the streets of Nicosia in their thousands to protest against a bailout deal they fear will push their country into an economic slump and cost many their jobs.

European leaders said the deal averted a chaotic national bankruptcy that might have forced Cyprus out of the euro.

With banks due to reopen on Thursday, Finance Minister Michael Sarris said he expected the control measures to be ready by noon (1000 GMT) on Wednesday: "I think they will be within the realms of reason," he said, without going into details.

"Banks will open on Thursday ... We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals," Sarris said in a Cyprus television interview.

The central bank governor said earlier that "loose" controls would apply temporarily to all banks. Earlier, the finance minister said they could be in place for weeks. Banks have been shut since final bailout talks got under way in mid-March.

Russia, whose citizens have billions of euros in Cypriot banks, cautioned Nicosia against imposing onerous controls on healthy banks.

"If there are such measures, this will not foster trust but only provoke additional problems for participants, depositors," Russian Finance Minister Anton Siluanov, in South Africa for a summit of the BRICS emerging powers group, told reporters late on Tuesday.

State-controlled Russian bank VTB has a subsidiary in Cyprus, Russian Commercial Bank, which has not been affected by the bailout deal.

Siluanov cautioned that Russian willingness to restructure and extend a 2.5 billion euro loan to Cyprus in 2011 would depend on the island's decision on capital controls.

"We will discuss (restructuring of the loan) in the context of the decisions the parliament adopts," he said. "We are prepared to discuss within these parameters."

POPULAR ANGER

The terms of the 10-billion euro ($13-billion) rescue with the European Union, International Monetary Fund and European Central Bank have stirred popular anger within Cyprus at the country's partners in the EU, notably Germany, the bloc's main paymaster and fiercest advocate of austerity.

On Tuesday, up to 3,000 high school students protested at parliament, in the first major expression of popular anger since the bailout was agreed in the early hours of Monday morning in Brussels. The deal largely side-stepped parliament, and has triggered opposition calls for a referendum.

"They've just got rid of all our dreams," said one student, named Thomas.

Outside the central bank, about 200 employees of the country's biggest commercial lender, the Bank of Cyprus , demanded the resignation of central bank governor Panicos Demetriades, chanting "Hands off Cyprus" and "Disgrace".

Dimos Dimosthenous, a veteran Bank of Cyprus employee, said: "The bank is being driven to closure. That will be the end."

A Bank of Cyprus official said its Chief Executive Yiannis Kypri had been fired by the central bank.

It follows the appointment of a special administrator to run the bank, which is being restructured as part of the bailout deal, and an offer to resign by its chairman, Andreas Artemis.

ACCOUNTS FROZEN

Under the terms of the bailout, the second largest lender, Cyprus Popular Bank, is to be shut down, and accounts of under 100,000 euros will be moved to the Bank of Cyprus. Bigger accounts at both banks will be frozen.

Government officials have estimated that these larger depositors, many of them wealthy foreigners including Russians, could lose around 40 percent of their cash.

On Wednesday, the government was appointing special crisis teams of economic experts to advise ministers.

Many Cypriots say they do not feel reassured by the bailout deal, however, and are expected to besiege banks as soon as they reopen after a shutdown that began over a week ago.

The long closure of the banks has hurt business, according to Andreas Hadjiadamou, president of the Cyprus Supermarkets Association, who said consumer confidence had "hit the floor".

Maria Benaki, who runs a family silverware business on Nicosia's biggest shopping street, said she had not had a customer in days.

"The situation is dire," she said. "What will happen at the end of the month when I need to pay my bills?"

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ECB's Nowotny says Cyprus is a special case

PRAGUE, March 26 | Tue Mar 26, 2013 6:23am EDT

PRAGUE, March 26 (Reuters) - The banking crisis in Cyprus is a special case and the rescue plan used is not a model for other countries, European Central Bank Governing Council member Ewald Nowotny said on Tuesday.

Early on Monday, Cyprus managed to clinch a deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors in return for a 10 billion euro ($13 billion) bailout.

Nowotny echoed earlier comments from ECB Executive Board member Benoit Coeure, who disagreed with Eurogroup head Jeroen Dijsselbloem's assertion that the Cyprus bailout would serve as a model for crises elsewhere. The Dutchman later backtracked on his comments after markets read them as meaning private sector bail-ins would play a greater role in future rescues.

"Cyprus is a special case," Nowotny, who is also the head of Austria's central bank, told reporters at a conference in Prague. "It is no model for other instances."

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