Cyprus bailout: Deal reached in Eurogroup talks
IMF chief Christine Lagarde: “We believe that this will form a durable and fully financed solution”
Eurozone finance ministers have agreed a 10bn-euro bailout deal for Cyprus to prevent its banking system collapsing and keep the country in the eurozone.
Laiki (Popular) Bank – the country’s second-biggest – will be wound down and deposit-holders with more than 100,000 euros ($130,000; £85,000) will face big losses.
However, all deposits under 100,000 euros will be “fully guaranteed”.
The European Central Bank had set a deadline of Monday for a deal.
Laiki will be split into “good” and “bad” banks, with its good assets eventually merged into Bank of Cyprus.
The president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told a press conference in Brussels the deal had “put an end to the uncertainty” around Cyprus’s economy.
Bondholders and those with deposits of more than 100,000 euros face significant losses; perhaps 40% or more”
He added he was “convinced” the new deal was better for the Cypriot people than the broader measure rejected by the Cypriot parliament last week, as it focused on two problem banks rather than the entire sector.
IMF head Christine Lagarde said the deal was “a comprehensive and credible plan” to help restore trust in the banking system.
Cypriot Finance Minister Michalis Sarris said he believed the possibility of bankruptcy had been averted.
“It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone,” he said.
The deal is being seen as good news by many of Cyprus’s small account-holders who have been protected. But officials acknowledge that Cyprus will enter a deep recession and that it will take years to recover, BBC Europe correspondent Chris Morris says.
There may be some relief that smaller savings no longer face a 6.7% levy, but Cypriot citizens may over time end up feeling more than 6.7% poorer as a result of this so-called bailout”
Many businesses will suffer or shut down, he says.
Under the deal all deposits under 100,000 euros will be secured.
The percentage to be levied on large deposits in the Bank of Cyprus will be resolved in the coming weeks, Mr Dijsselbloem said.
One key element of the deposit tax, demanded by the IMF, is that it should not require approval by the Cyprus parliament.
EU Commissioner for Economic Affairs Olli Rehn said that the “depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people”.
Asian financial markets rose in early trading on news of the deal.
Bondholders and those with deposits of more than 100,000 euros face significant losses; perhaps 40% or more
Many businesses will suffer or shut down,
“Jim Sinclair” The Russian interests will win if nobody touches their deposits. The Russian interests will lose if deposits over 100,000 euros are taxed significantly with no exception. So, really, the face down is still in process.
Cyprus bailout: Kremlin ‘could punish Europe’ in
reprisal for bank levy
Fears mount that Russia could act against European companies if charge on deposits hits €30bn Russian investments
Fears are growing of Russian reprisals against European businesses as EU authorities desperately seek a deal to save the Cypriot economy by imposing a 25% levy on bank deposits of more than €100,000.
As the island scrambled to put together a rescue programme, its finance minister, Michalis Sarris, said “significant progress” had been made on the latest levy plan in talks with officials from the European Union, theEuropean Central Bank and the International Monetary Fund.
The government in Nicosia faces a deadline of Monday to reach an agreement or the European Central Bank says it will cut off emergency cash to the island, spelling the likely financial collapse of its banking system and a potential exit from the European single currency.
However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: “If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.