Cyprus Bailout: Deal Reached In Eurogroup Talks

Cyprus bailout: Deal reached in Eurogroup talks (BBC News, March 25, 2013):

Eurozone finance ministers have agreed a deal on a bailout for Cyprus to prevent its banking system collapsing, officials say.

Reports suggest the deal will include a levy on deposits of more than 100,000 euros in Cyprus’ two biggest banks.

The levy on accounts in Laiki Bank – the country’s second-biggest – could be as high as 40%, correspondents say.

Cyprus needs to raise 5.8bn euros (£5bn) to qualify for a 10bn-euro EU bailout and avoid bankruptcy.

An EU official told the BBC that under the draft agreement, Laiki Bank will be wound down with “a significant levy” affecting those with deposits of over 100,000 euros.

Large deposits in the country’s biggest bank, Bank of Cyprus, could also be hit by the levy, reports say.

Laiki is also likely to be split into “good” and “bad” banks.

Earlier reports said good assets would be merged into Bank of Cyprus and administrators appointed to liquidate the remaining toxic assets.

Asian financial markets rose in early trading on news of the deal.

Resignation threatThe meeting was delayed by four hours while Cypriot President Nicos Anastasiades was locked in talks with EU, European Central Bank and IMF leaders.

Mr Anastasiades had reportedly asked the heads of the “troika” – the IMF, European Central Bank and European Commission – if they wanted him to quit.

“Do you want to force me to resign?” Cyprus News Agency quoted him as saying, citing sources at the presidential palace.

“I am giving you one proposal, and you do not accept it. I give you another and it’s the same. What else do you want me to do?” he was quoted as saying.

In another development on Sunday, Bank of Cyprus – the island’s biggest lender – further limited cash machine withdrawals to 120 euros a day.

With queues growing outside cash machines across the island, the second biggest lender, Laiki, also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank’s previous limit had been 260 euros per day.

Banks have been closed since Monday and many businesses are only taking payment in cash.

In the run-up to the crunch talks in Brussels, the EU’s commissioner for economic affairs, Olli Rehn, said the island had only “hard choices left” and must agree terms on Sunday.

German pressureParliament rejected a bank levy on small and large deposits earlier this week. The levy that was rejected would have taken 6.75% from small savers and 9.9% from larger investors. It caused widespread anger among ordinary savers.

If a deal on an alternative agreement fails, the European Central Bank (ECB) says it will cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.

There is concern on the Mediterranean island that a levy on large-scale foreign investors, many of whom are Russian, will damage its financial sector.

But leading Cypriot bankers have urged parliament to accept a levy, with small savers exempted.

Correspondents say Germany has pushed hard for a levy on investors who have benefited from high interest rates in recent years, rejecting a Cypriot plan to use money from pension funds.

Cypriot Finance Minister Michael Sarris recently travelled to Moscow in an unsuccessful attempt to get Russian help.

On Saturday afternoon more than 1,000 bank employees marched to the Cypriot finance ministry, stopping briefly at the presidential palace.

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