Cyprus Bailout Deal Wins Eurozone Approval

March 25th, 20137:11 am @

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Cyprus has secured a 10bn euro (£8.5bn) bailout, saving the country from a banking system collapse and bankruptcy.

In return for the rescue funds, Cyprus must restructure its banking sector under an EU-IMF plan approved by eurozone ministers earlier today.

The country’s second-largest bank, Popular Bank of Cyprus, known as Laiki, will effectively be shut down and split into a “good bank” and a “bad bank”.

Deposits below 100,000 euros (£85,509) in Laiki will be safeguarded and transferred to the Bank of Cyprus, the so-called “good bank”.

Christine Lagarde and the German finance minister at the Eurogroup

Deposits above 100,000 euros, which under EU law are not insured, will be frozen and will be used to resolve debt. It is not yet clear how severe the losses will be for these depositors.

The move will yield 4.2bn euros (£3.6bn) overall – the bulk of the 5.8bn euros (£4.9bn) Cyprus needed to raise as part of the bailout conditions.

The deal emerged hours before a deadline to avert a collapse of the banking system, which could have forced Cyprus to exit the euro.

It followed fraught negotiations between Cypriot President Nicos Anastasiades and the troika of creditors – the International Monetary Fund, European Commission and European Central Bank.

Banks have been closed this past week

“We’ve put an end to the uncertainty that has affected Cyprus and the euro area over the past week,” said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone’s finance ministers.

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

After the eurozone’s finance ministers’ approval, several national parliaments, such as Germany’s, must also approve the bailout deal, which might take another few weeks. EU officials said they expect the whole programme to be approved by mid-April.

Cyprus’ finance minister Michalis Sarris said: “It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone. A long period of uncertainty and insecurity surrounding the Cyprus economy has ended.”

Cyprus’ outsized banking sector was crippled by exposure to crisis-hit Greece.

In a vote on Tuesday, the country’s 56-seat parliament dismissed a levy on depositors as “bank robbery”.

The country’s finance minister Michael Sarris then spent three fruitless days in Moscow trying to win help from Russia, whose citizens have billions of euros at stake.

Cypriots were outraged by the original proposal and have been queuing at cash machines ever since bank doors were closed last weekend on the orders of the government.

Article source: http://news.sky.com/story/1069277