Eurozone finance ministers approve bailout deal for Cyprus
The Eurogroup has approved a deal on a €10 billion bailout for Cyprus, struck early Monday in Brussels. Cyprus avoids exiting the eurozone, but will have its second largest bank closed with heavy losses expected for big depositors.
“The size of financial assistance will amount to 10 billion
euro,” Eurogroup president Jeroen Dijsselbloem has
announced at a press conference in Brussels after the eurozone
finance ministers swiftly endorsed the plan.
“With this agreement we’ve put an end to the uncertainty that
has affected Cyprus and the euro area over the last few days,”
The European Stability Mechanism (ESM)'s Klaus Regling says Cyprus should receive the first tranche of money from the eurozone at the beginning of May.
The new deal agreed between Cyprus and the Troika of international lenders - the EU, the ECB and the IMF - will set up a "good bank" and a "bad bank" and will mean that the country’s second largest bank Laiki will effectively be shut down.
Deposits below €100,000 will be shifted from Laiki to the Bank of Cyprus to create a “good bank.” Deposits larger than €100,000, which are not guaranteed under EU law, will be frozen and used to resolve debts. Customers could lose up to 40 percent of their savings in exchange for shares. According to Dijsselbloem, the raid on uninsured Laiki depositors is expected to raise €4.2 billion.
He stressed that there will be no levy or tax imposed on all
deposits in Cypriot banks, and small account holders will have
their savings secured.
However, the closure of Laiki means that thousands of people
will lose their jobs and senior bondholders and uninsured
depositors will suffer severe losses. Officials said senior
bondholders in Laiki would be 'wiped out', according to
The decision comes hours before the Monday deadline set by the
European Central Bank, following heated talks between President
Nicos Anastasiades and the Troika.
If the bailout deal hadn’t been sealed by Monday night, Cyprus could have faced bankruptcy, meaning there was a possibility that it would have become the first country to abandon the euro.
Earlier on Sunday the central bank in Cyprus has imposed an ATM
withdrawal limit of €100 per day for the island's two biggest
banks, in order to prevent a run on lenders.
Warren Pollock - market analyst and financial adviser says the financial turmoil in Cyprus is part of a broader crisis.
“In reality this is a global problem which has not been
addressed since 2007-2008 and previous to that with the issuance of
huge amounts of debt and leverage into the system both in Europe
and in the United States,” he told RT.
“And when that debt goes bad, the only recourse which exists
is to tap remaining collateral in the system which is the
Pollock believes that sooner or later this “sort of stealing” of
savings may result in popular unrest. “We can definitely see
smaller countries being the test to see whether savings could be
stolen on a wider scale.”
The euro witnessed a sharp rise in share prices in the Far East; in Tokyo afternoon trade on Monday, it fetched $1.3038 and 123.61 yen. On Friday, it was fetching only $1.2986 and 122.72 yen.