adminThe agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.
Swiftly endorsed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100 000 euros to the Bank of Cyprus to create a “good bank”.
Deposits above 100 000 euros in both banks, 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.
The raid on uninsured Laiki depositors is expected to raise 4,2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.
Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.
An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.
Cyprus government spokesman Christos Stylianides said: “We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the eurozone with unforeseeable consequences.”
Asked about the level of losses on uninsured depositors on Bank of Cyprus, he told state radio it was not possible to be specific at this stage.
“The assessment is that it will be under or around 30 percent. But that is a bit of an arbitrary estimate.”
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.
“It can’t be done without a bail-in in both 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.
Lefteris Christoforou, vice-chairman of the ruling Democratic Rally party, said it was important that Cyprus had avoided a chaotic bankruptcy.
“It is a bad deal, but the extreme scenario we had to contend with was worse.”
Former central bank government Afxentis Afxentiou added: “It’s a new day for Cyprus . . . I believe that in two or three years Cyprus will find its feet.”
A senior source in the Brussels talks said Anastasiades threatened to resign at one stage on Sunday if he was pushed too far. He left EU headquarters without making any comment.
Conservative leader Anastasiades, barely a month in office and wrestling with Cyprus’ worst crisis since a 1974 invasion by Turkish forces split the island in two, was forced to back down on his efforts to shield big account holders.
Diplomats said the president had fought hard to preserve the country’s business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons but had lost. — Reuters.
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