Wednesday 20 June 2018

$13bn euro zone bailout for Cyprus

Brussels, March 17, 2013

Euro zone finance ministers and the International Monetary Fund have agreed on a 10 billion-euro ($13 billion) bailout deal for Cyprus, the fifth euro zone member to be saved from bankruptcy.

The package, which was agreed after some 10 hours of talks in Brussels, is significantly less than the 17 billion euros initially requested.

Under the deal, diplomats said all bank deposits in Cyprus would be hit with a one-off, unprecedented "levy" of up to 9.9 per cent, depending on the amounts held.

At the same time, a "withholding tax" will be imposed on interest on bank deposits, in a further hit for private investors.

Tomorrow is a bank holiday in Cyprus so it will be Tuesday before depositors will be able to react.

Cyprus Finance Minister Michalis Sarris said his country's parliament would today vote on the introduction of the bank levy.

The rescue talks, attended by Cyprus President Nicos Anastasiades, had dragged on as the Cypriot government fought its ultimately doomed battle to avoid a "bail-in" or haircut, which it argued would trigger a run on its banks and ricochet on through the wider euro zone financial system.

Cyprus - which accounts for just 0.2 per cent of the combined euro zone economy - has become the latest country to secure a debt rescue package from its euro zone partners in the three-year debt crisis.

The price tag is very small compared with two rescues for Greece worth some 380bn euros, Ireland's 85 billion euros, Portugal's 78 billion and 41 billion for Spanish banks.

"It's something that compared to other possible outcomes, is the least onerous," Sarris said about the deal, adding that the arrangement meant his government "avoided salary and pension cuts" for public sector workers.

Intended to apply to everyone from pensioners to Russian oligarchs alleged to have billions stashed away in what officials say is a bloated Cypriot banking sector, the proposed levy immediately raised concerns among experts over a possible bank run in bigger euro zone economies, where fragile public finances are also under scrutiny.

Top European Central Bank official Joerg Asmussen said the only way to drive down the rescue was to claw back money from the Cypriot banking sector, which is estimated to hold assets worth five times the country's economic output.-Reuters

Tags: Cyprus | Euro zone | Bailout |


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