Cyprus, Troika Seal Bailout Deal

Finance | March 25, 2013, Monday // 08:12|  views

EU Commissioner for Economic Affairs Olli Rehn says that the "depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people." Photo by EPA/BGNES

The Eurozone finance ministers have reached a deal on the EUR 10 B bailout for Cyprus, which is to avert the collapse of the country's banking system and the use of the EUR.

Laiki (Popular) Bank - the country's second-biggest bank- will be liquidated and holders of deposits of more than EUR 100 000 are facing face big losses, while all deposits under EUR 100 000 will be "fully guaranteed".

The European Central Bank issued earlier a Monday deadline for the deal.

Laiki will be split into "good" and "bad" banks, with its good assets eventually merged into Bank of Cyprus, with the later undergoing a full overhaul, BBC reports.

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.

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.

The percentage to be levied on large deposits in the Bank of Cyprus will be resolved in the coming weeks, Dijsselbloem said, however, the Bulgarian Focus news agency, citing unnamed senior officials in Cyprus and local media, reports the levy will be a one-time 30%.

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

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.

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

According to BBC, Anastasiades had reportedly asked them if they wanted him to quit.

"Do you want to force me to resign?" Cyprus News Agency quoted him as saying, citing sources at the presidential palace.

"I am giving you one proposal, and you do not accept it. I give you another and it's the same. What else do you want me to do?" he was quoted as saying.

Meanwhile, with long lines for ATMs, Bank of Cyprus and Laiki cut the limit on cash withdrawals further down – to EUR 120 and EUR 100 a day, respectively.

Banks have been closed since last Monday and many businesses are only taking payment in cash. Dijsselbloem said that the details of the reopening of Cyprus' banks would be discussed on Monday by the Cypriot government and the troika.

Last week, the Cypriot Parliament rejected a bank levy on small and large deposits, prompting ECB to issue a warning it will cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the Eurozone.

Leading Cypriot bankers have urged Parliament to accept a levy, with small savers exempted.

The levy, which had outraged many Cypriots, was a condition of a EUR 10 B bailout for Cyprus. This condition has been lifted after the Sunday talks.

Cyprus has attracted money through its low tax rates, with Russians holding between a third and a half of all Cypriot deposits. Russian private and corporate assets in Cypriot banks are believed to total about EUR 30 B, including many larger deposits, and Russian officials had expressed anger at the bank levy plans.

BBC 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.

Cypriot Finance Minister Michael Sarris recently travelled to Moscow in an unsuccessful attempt to get Russian help.

German Chancellor Angela Merkel said earlier she regretted but respected the Cypriot vote.

She said the Eurozone had a duty to find a solution for Cyprus, but added that the country's current banking system was "not sustainable".

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Tags: IMF, ECB, Eurozone, Jeroen Dijsselbloem, Russian, Nicos Anastasiades, president, cypriot, Cyprus, bailout package, levy, banks, bank, European Union, euro, Germany, finance minister, Angela Merkel, Russia, loan, Olli Rehn, Laiki


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