Cyprus has avoided bankruptcy by agreeing to a bailout deal that includes the closing of the island nation’s second largest bank and enforces heavy losses on wealthy bank depositors. In return, the cash-strapped island will receive a $13 billion bailout from its lenders.
The rescue deal, facing a Monday deadline, includes closing down Cyprus’ Laiki bank and moving deposits of $130,000 or less to the stronger Bank of Cyprus. Accounts of more than $130,000 are not insured under European Union regulations and will take losses. The amount of the losses is not immediately clear.
Agreement was reached early Monday at last-minute talks in Brussels with the European Union, European Central Bank and International Monetary Fund. To secure the loan from international lenders, the Cyprus government needed to raise $7.5 billion on its own.
German Finance Minister Wolfgang Schaeuble said Cypriot lawmakers would not need to vote on the new scheme, since they had already enacted a law setting procedures for bank resolution.
IMF chief Christine Lagarde said the bailout deal is “a comprehensive and credible plan” to deal with Cyprus’ economic challenges.
International creditors have said Cyprus’ business model of attracting foreign investors – among them many Russians – with low taxes and lax financial regulation has backfired and must be replaced.
Eurozone head Jeroen Dijsselbloem said he is “convinced this is a much better deal” than the one to raid all savings accounts, which unraveled last week.
Amid fears of a banking collapse, Cyprus’ central bank on Sunday imposed a daily withdrawal limit of $130 from the automatic teller machines of the country’s two largest banks to prevent a bank run by depositors worried about their savings.
Without a deal, the tiny Mediterranean island nation would have faced the prospect of bankruptcy, which could have forced it to abandon the euro currency and forced its exit from the eurozone.
(Photo: Steve Ford/sxc.hu)