Cyprus bailout: Deal reached in Eurogroup talks

 

"I'm very concerned... for our children, for the future," one Cypriot told the BBC's Tim Willcox

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".

Officials warn the island faces a deep recession with many businesses to shut.

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Bondholders and those with deposits of more than 100,000 euros face significant losses; perhaps 40% or more”

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The European Central Bank had set a deadline of Monday for the deal, which came a week after the Cypriot parliament rejected a proposed bank levy on small and large deposits.

The new deal will not be put to a vote in the Cyprus parliament.

IMF head Christine Lagarde said the bailout deal agreed 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.

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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”

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"It's not that we won a battle, but we really have avoided a disastrous exit from the eurozone," he said.

There will be relief in Cyprus that small depositors have been protected, but the deal comes at a heavy price, BBC correspondents say.

The chairman of the Cypriot parliament's finance committee, Nicholas Papadopolous, said the agreement made "no economic sense".

"We are heading for a deep recession, high unemployment. They wanted to send a message that the Cypriot economy ought to be destroyed, and they've succeeded in a large part - they've destroyed our banking sector," he told the BBC.

EU Commissioner for Economic Affairs Olli Rehn conceded that the "depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people".

IMF chief Christine Lagarde: "We believe that this will form a durable and fully financed solution"

Financial markets in Asia and Europe rose in early trading on news of the agreement.

Russian President Vladimir Putin has told his government to look at restructuring a 2.5bn-euro loan extended to Cyprus in 2011.

The BBC's Steve Rosenberg in Moscow says suspicion has been growing in Russia that Europe is using the banking crisis to target Russian money in Cyprus.

Cash cap

Bailout deal

  • To qualify for 10bn-euro bailout, Cyprus must raise 5.8bn euros
  • Its biggest bank - Bank of Cyprus - to be restructured
  • Second biggest bank - Laiki - to be wound up and split into a "good" and "bad" bank
  • Accounts holding under 100,000 euros will be protected in both banks
  • Deposits of more than 100,000 in Bank of Cyprus are frozen for now
  • Level at which funds on big deposits will be taxed is still to be set

The deal came after hours of tense negotiations between Cypriot President Nicos Anastasiades and the "troika" of EU, European Central Bank and IMF leaders.

Under the agreement all deposits of less than 100,000 euros will be secured.

Laiki will be split into "good" and "bad" banks, with its good assets eventually merged into Bank of Cyprus.

The percentage to be levied on large deposits in the Bank of Cyprus - the island's biggest lender - will be resolved in the coming weeks, the president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told a press conference overnight in Brussels.

Cyprus government spokesman Christos Stylianides told state radio the level could be set at "around 30%".

Banks in Cyprus have been closed since last Monday while politicians and officials tried to work out how to raise 5.8bn euros to qualify for the bailout. Many businesses are only taking payment in cash.

Cyprus bailout compared with other EU bailouts

On Sunday, Bank of Cyprus further limited cash machine withdrawals to 120 euros a day.

With queues growing outside cash machines, Laiki also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank's previous limit had been 260 euros per day.

The details of the reopening of Cyprus's banks are to be discussed on Monday.

German pressure

A week ago, the Cypriot parliament rejected a planned bank levy that would have taken 6.75% from small savers and 9.9% from larger investors. The proposal caused widespread anger among ordinary savers.

In response, the European Central Bank (ECB) had said it would cut off funds to Cyprus's banks by Monday unless a new deal was reached.

There is concern on the Mediterranean island that a levy on large-scale foreign investors, many of whom are Russian, will damage its financial sector.

Correspondents say Germany has pushed hard for a levy on investors who have benefited from high interest rates in recent years, rejecting a Cypriot plan to use money from pension funds.

A Cypriot attempt to secure Russian help was unsuccessful.

 

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  • Comment number 1362.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 1361.

    It was obvious that they'd reach a deal, as the troika couldn't allow Cyprus to collapse and leave the Euro. The losses on deposits over €100,000, but not under, seems fair enough.

    I do wonder how much longer this Euro Titanic can keep sailing, after hitting so many icebergs, all the while Captain Germany pretending that there's nothing to worry about and ordering yet another deckchair shuffle.

  • rate this
    0

    Comment number 1360.

    NYT reports that the plan" would [...] scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders."


    Can somebody explain to me what's the difference between such tax and "forced losses"?

  • rate this
    +1

    Comment number 1359.

    Anybody who lives in a country that has forsaken its traditional economy, be it even such 'lowly' things as engineering or farming (which actually produce stuff), to embrace high finance (which produces nothing) should be worried. We (not the banks) either reform the system[1] or go through it all again.

    [1] http://www.positivemoney.org/

  • rate this
    +2

    Comment number 1358.

    Don't think it was a smart idea. There will be a slow but sure run on the world banks now that citizens of all countries know their savings can be raided.

  • rate this
    +3

    Comment number 1357.

    From the article

    "One key element of the deposit tax, demanded by the IMF, is that it not require a parliamentary vote."

    Anyone see a problem here?

  • rate this
    +1

    Comment number 1356.

    The Saga continues how long before the general public of every nation understands financing the life style of the few in Brussels will end in total collapse of everybodies living standards and he Euro will definately crash!!

  • rate this
    +3

    Comment number 1355.

    Don't you see? The IMF is not a charity organization. It is legalized Mafia.
    Each loan puts more money in their pockets and takes it away from the people. Whichever country they touch, debt and destruction follows. "Deposit tax"?! Are people insane to accept this? The IMF, and all the corrupt banks must be put out of business. They will not stop until they make us all destitutes.

  • rate this
    +2

    Comment number 1354.

    If money doesn’t grow on trees for us, why do banks have branches?

  • rate this
    +1

    Comment number 1353.

    Two Qs:

    Are there only the 3 banks on Cyprus? (No foreign ones or even Russian ones)

    If I have 110000€ in one account, will ALL 110000 get the higer levy (if 20%, then 2200), or will the 1st 100000 be levy-free and the 20% apply to the remaining 10000 (meaning I lose 220)?

  • rate this
    +1

    Comment number 1352.

    More like a stitch up organised by the Germans ; watch out everyone your turn next !!!

  • rate this
    +1

    Comment number 1351.

    Agreeing with the system we have in politics over the world is the problem. As long they can keep us engaged in that 'they' win because it is loaded that way. 'Democracy' is supposed to be rule by the people ('demos' = people). However the mechanics of the system means that is not they way it works. They suckered us with that one but that is what underpins all these 'Intractable' issues we get.

  • rate this
    +1

    Comment number 1350.

    The Greek govt owed Cyprus banks 20 billion, Germany as part of the Greek bailout forced creditors to take a 50% haircut. The Cyprus banks are to small to absorb such loses hence the current problem. Germany caused problem and now didn't want to solve the problem they caused!!!

  • rate this
    +1

    Comment number 1349.

    Some good news to wake up to this morning - no bail out would have been worse for the ordinary Cypriot in the street (they'd have lost ALL their money if the banks had gone belly up this morning) but this deal is far more sensible than the original offer.

  • rate this
    +2

    Comment number 1348.

    Dear Rich from comment http://www.bbc.co.uk/news/world-europe-21916102?postId=115722181#comment_115722181 . Growing up in Greece, I remember how the government struggled to make sure that Cyprus would join EU and Turkey will not. Let's not forget that Cyprus is a country divided. For many Greek Cypriots, EU membership is another guarantee against Turkey.

  • rate this
    -1

    Comment number 1347.

    Cyprus should have done what Iceland did. Bit the bullet and let the banks go bust.They would have come out of this debacle with some integrity and could have rebuilt their economy. This ECB bailout will ensure that they are under the thumb of the EU for decades. It has saved the bankers at the expense of the ordinary people who will regret it in due course.
    Who is going to be next Italy or Spain?

  • rate this
    +2

    Comment number 1346.

    Must be a good day to be in Cypriot, 10bn euro bailout = 1200 euro bailout for each person in Cyprus to supplement their extravagant lifestyle, thank u Germany

  • rate this
    +3

    Comment number 1345.

    Anyone living in Cyprus with open eyes can see the facts as clear as the EU power brokers & IMF etc. The Government workforce is overstaffed, overpaid and under utilised! Semi State companies same if not worse! Banks same again. Salaries on average double or triple private sector! Over 40 days hols per year with up to 17 public holidays! Cypriots have lived beyond means for years - realitychecknow

  • rate this
    +2

    Comment number 1344.

    @1330.EU-injustice
    Ok - so it has been decided... Robbery of private accounts is now acceptable in Europe.

    ---

    When a bank goes bust, then all deposits over the insured amount join the creditors pool.
    This is true in all countries. Seems to me they are just applying the rules correctly, whereas the first effort was wrong as the insured deposits were affected.

  • rate this
    +1

    Comment number 1343.

    Is Christine Lagarde not under some sort of finacial investigation? Is she lecturing financial prudence? The bible for one thing at least was spot on, MONEY IS THE ROOT OF ALL EVIL! How can mountains of whatever debt be classed as an asset?

 

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