EU Ministers Approve Cyprus Bailout Deal

Cyprus reached a deal with international lenders on a 10 billion euro ($13 billion) rescue plan, agreeing to close down one of its largest banks and inflict heavy losses on big depositors.

No levies to be imposed on deposits below €100,000; Popular Bank of Cyprus to end its existence. Photo: ABC News

The agreement comes after negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund – and it was reached a few hours before a deadline.

A deal was reached this morning and it’s believed to restructure the country’s banking sector in return for a bail-out of €10 billion from the EU.

However, unlike under the deal struck last week, which was rejected by the Cypriot parliament, no levy will be imposed on bank deposits below €100,000, reports European Voice.

Cyprus’ banking sector will overcome total restructurisations and will be shrunk. The Popular Bank of Cyprus, mostly known as Laiki, will be shut down immediately. Its ‘good’ assets, including insured deposits below €100,000, will be folded into the Bank of Cyprus.

Welcoming the deal, Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting of finance ministers, admitted that it was “a particularly difficult road to get here”.

He went on, adding that the objectives of the plan had been “largely unchanged” since last week’s agreement but that the parameters had been “improved and refined” to put “an end to the uncertainty” that the country has experienced.

“I’m convinced this solution is better than the one from last week because we’ve focussed on the problems where they’ve arisen; that is in the two large banks,” he said.

Cyprus government spokesman Christos Stylianides said: “We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the euro zone with unforeseeable consequences.”

When asked about the losses on uninsured depositors in Bank of Cyprus, he replied: “The assessment is that it will be under or around 30 percent.”

German Chancellor Angela Merkel also commented on the issue, saying that the reached agreement was а right one for Cyprus as it ensured that those who contributed to the crisis were required to pay towards its resolution.

“I am very pleased that a solution was found last night and that we have been able to avoid an insolvency,” Merkel said.

Anastasiades was scheduled to come out to the press at 7 p.m (1700 GMT), on his return to Cyprus from Brussels, but the appearance was delayed.

Although Lefteris Christoforou, vice-chairman of the ruling Democratic Rally party, he did admit that it was important that Cyprus had avoided a chaotic bankruptcy. “It is a bad deal, but the extreme scenario we had to contend with was worse.”

Russia made it clear that it would back the bailout even though it would impose big losses on its own depositors, who have impressive sums of money in Cyprus banks.

President Vladimir Putin ordered officials to restructure a loan Moscow granted to Cyprus two years ago – having rejected Nicosia’s request for easier terms in crisis talks last week, writes Reuters.

Prime Minister Dmitry Medvedev – who ranks below Putin – earlier criticized the bailout, voicing the anger expressed by Russian depositors, saying: “The stealing of what has already been stolen continues.”

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