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February 27, 2021
BUSINESS

Cyprus agrees bailout deal with the Eurozone

Markets rise on bailout, but official Europe’s reaction is mixed.

Eurozone finance ministers have agreed a EUR 10 bn bailout deal for Cyprus to prevent its banking system collapsing and keep the country in the Eurozone, BBC informs. The deal came after hours of tense negotiations between Cypriot President Nicos Anastasiades and the “troika” of EU, European Central Bank (ECB) and IMF leaders. Under the agreement all deposits of less than EUR 100,000 will be secured. Laiki (Popular) Bank – the country’s second-biggest – will be wound down and deposit-holders with more than EUR 100,000 (USD 130,000) will face big losses. However, all deposits under 100,000 euros will be “fully guaranteed”. Officials warn the island faces a deep recession with many businesses to shut. The ECB had set a deadline of Monday for the deal, which came a week after the Cypriot parliament rejected a proposed bank levy on small and large deposits. The new deal will not be put to a vote in the Cyprus parliament. IMF head Christine Lagarde said the bailout deal agreed was “a comprehensive and credible plan” to help restore trust in the banking system. Cypriot Finance Minister Michalis Sarris said he believed the possibility of bankruptcy had been averted. “It’s not that we won a battle, but we really have avoided a disastrous exit from the Eurozone,” he said. The chairman of the Cypriot parliament’s finance committee, Nicholas Papadopolous, said the agreement made “no economic sense”. “We are heading for a deep recession, high unemployment.

They wanted to send a message that the Cypriot economy ought to be destroyed, and they’ve succeeded in a large part – they’ve destroyed our banking sector,” he told. EU Commissioner for Economic Affairs Olli Rehn conceded that the “depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people”. The percentage to be levied on large deposits in the Bank of Cyprus – the island’s biggest lender – will be resolved in the coming weeks, the president of the Eurogroup of Eurozone finance ministers, Jeroen Dijsselbloem, told a press conference overnight in Brussels. Cyprus government spokesman Christos Stylianides told state radio the level could be set at “around 30 pc”.

Medvedev attacks Cyprus bank deal

Despite describing the haircut for wealthy savers as stealing, Russia has signaled that it will support Cyprus by agreeing to relax the terms of its existing loan. President Vladimir Putin announced, through its spokesman, Dmitry Peskov, that Russia will restructure the EUR 2.5 bn euro loan made to Cyprus in December 2011. The suspicion has been growing in Russia that Europe is using the banking crisis to target Russian money in Cyprus. Russia’s prime minister has slammed a deal that saves Cyprus from bankruptcy but forces big losses on many bank deposits, a large chunk of which are held by Russians, huffingtonpost.com informs. Dmitry Medvedev says the move is tantamount to theft.

Germany: The bailout deal, best possible solution

At a news conference in Berlin, German Finance Minister Wolfgang Schaeuble said the agreement was “much better” from Germany’s perspective than a deal struck last week which would have hit small depositors and was rejected by the Cypriot parliament, as channelnewsasia.com reported. “The result is a fair one for everybody involved. I think it’s a good one and it will serve as a basis for negotiations with the troika of international creditors”, Schaeuble said. The next step, Schauble said, is to work together with Cyprus to reopen the banks in the country on Tuesday as smoothly as possible. The German parliament is expected to vote on the bailout in the coming weeks. Schaeuble said the troika of international creditors will be in close contact with Russia over the deal. Steffen Seibert, a spokesman for Chancellor Angela Merkel, said the German government would work for the agreement’s passage in the lower house, the Bundestag, noting that it addressed all key concerns raised by lawmakers in recent weeks.

 


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