Relief in Brussels, anger in Moscow at Cyprus bailout deal

EU leaders express relief at Cyprus bailout deal but Russian PM says 'the stealing continues'

Updated At:

Cyprus' second-largest bank, Laiki, will effectively be shuttered, with all bond holders and those with savings of more than 100,000 euros facing massive losses. IMF chief Christina Lagarde calls it a “lasting, durable and fully financed solution” but measures expected to deepen Cyprus’ recession and alienate investors at the expense of averting bankruptcy

Dutch Finance Minister and President of the Eurogroup Council Jeroen Dijsselbloem (C) takes part in a joint press conference with IMF chief Christine Lagarde (L) and EU Commissioner for Economic and Monetary Affairs Olli Rehn (AFP) Dutch Finance Minister and President of the Eurogroup Council Jeroen Dijsselbloem (C) takes part in a joint press conference with IMF chief Christine Lagarde (L) and EU Commissioner for Economic and Monetary Affairs Olli Rehn (AFP) With the words "It's not that we won a battle, but we really have avoided a disastrous exit from the eurozone" by Cypriot finance minister Michalis Sarris, the Eurogroup agreed a last-minute 10bn euro bailout for Cyprus in the early hours of Monday morning.

According to the rescue package, to which the Cypriot government had to find ways to raise 5.8bn euros, deposits above 100,000 euros in both Laiki and Bank of Cyprus - which are not guaranteed under EU law - will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus through a deposit/equity conversion.

Deposits below 100,000 and shifted to the Bank of Cyprus to create a so-called good bank.

Dijsselbloem said it was not yet clear how severe the losses would be to Laiki's large bank deposit holders, but he noted that it is expected to yield 4.2bn euros overall. Analysts have estimated investors might lose up to 40 percent of their money.

Laiki - which becomes a bad bank - will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would also be wiped out and those in Bank of Cyprus would have to make a contribution.

With negotiations apparently at stalemate for much of Sunday, and the Eurogroup meeting of eurozone finance ministers and the troika of International Monetary Fund, European Commission and European Central Bank (ECB) lenders not starting until past midnight in Brussels, time became the principal motivator for striking a deal.

The ECB had threatened to cut off crucial emergency assistance to the country's banks by Tuesday if no agreement was reached.

Without a bailout deal by Monday night, Cyprus would have faced the prospect of bankruptcy, and almost certainly become first country to abandon the euro currency.

"We believe that this will form a lasting, durable and fully financed solution," said IMF chief Christine Lagarde.

"I am confident that the programme will work, but let's be honest: at this moment, we cannot say exactly what the impact is going to be. It will depend on the level of implementation and the commitment of Cyprus itself, said European Commission President Jose Manuel Barroso.

The euro rose to a session high of $1.3050 from around $1.2980 on the news, moving away from a four-month low of $1.2844 hit on March 19

However, it is widely accepted that the mix of depositor haircuts, tax rises and privatisations will likely to deepen the recession in Cyprus and alienate foreign investors, principally from Russia, which accounts for over a third the island's savings

'The stealing continues'

Russia's Prime Minister Dmitry Medvedev echoed local incredulity that Russian depositors - who make up more than a third of Cyprus' bank account savings - face massive losses.

"The stealing of what has already been stolen continues," he said. 

Medvedev had referred to the original idea of a 9.9% haircut on deposits over 100,000 euros as "completely absurd."

However,  a spokesman for Russian President Vladimir Putin did say on Monday that the president has asked the government to restructure a 2.5bn  euro loan, taken out by Cyprus in 2011.

German Finance Minister Wolfgang Schaeuble said lawmakers would not need to vote on the new scheme, since they had already enacted a law setting procedures for bank resolution.

"It can't be done without a bail-in in both [Laiki and Bank of Cyprus] banks... This is bitter for Cyprus but we now have the result that the [German] government always stood up for," Schaeuble told reporters, saying he was sure the German parliament would approve the deal.

Recently-elected Cypriot President Nicos Anastasiades reportedly threatened to resign at one stage on Sunday if he was pushed too far. “We will have a [bailout] programme and this is in the interest of the people of Cyprus and the European Union as a whole,” he said afterwards.

In a statement, the Eurogoup said it now looked forward to Cyprus “addressing financial sector imbalances” and increase the withholding tax on capital income and of the statutory corporate income tax rate.

It also refers to the capital controls  intended to stop heavy largescale withdrawals once banks, which have remained shut for a week, reopen.

“The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms of scope and duration in line with the Treaty.”

The Central Bank of Cyprus imposed a 100-euros a day limit on withdrawals from cash machines at the two biggest banks to avert a run. A decision on the reopening of the branches is expected on Monday, which is a public holiday in Cyprus. 

The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.

Read all the drama as it unfolded as reported by EnetEnglish:

Live blog: March 20
Live blog: March 21
Live blog: March 22
Live blog: March 23
Live blog: March 24

Send with e-mail Print Page

Read also

In category
With tags