NICOSIA — 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 backed several other measures that give additional cover to borrowers, including writing off the outstanding amount of a loan once property is foreclosed on.
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. But opposition lawmakers 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.
Another piece of legislation allows borrowers with loans of up to 350,000 euros ($450,000) to seek court protection for their homes and businesses.
Simon O’Connor, a spokesman at the European Commission, said that some of those laws “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 the new measures may make it more difficult for Cyprus to get its hands on the next batch of bailout cash it is due to get, although there’s enough money in hand to avoid an imminent crisis. He insisted that he had warned lawmakers of the potential consequences.
Cypriot President Nicos Anastasiades has held back from signing into the law six pieces of legislation that are seen as conflicting with the rescue deal’s terms and has asked the Supreme Court to rule whether four of the six pieces are unconstitutional.
He added Wednesday that he would decide on a course of action that would “safeguard stability and to avoid developments that would cast the country’s credibility and banking system into doubt.”
Opposition parties criticized Anastasiades for opting to clash with parliament.
MENELAOS HADJICOSTIS, Associated Press
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