Cyprus has signed a €10bn bailout agreement with 17 eurozone finance ministers that will close the country's second-largest financial institution Laiki Bank and force large losses on big deposits.
The deal will scrap the countrywide levy and guarantee all deposits below €100,000 as well as retain Cyprus in eurozone. In addition, Laiki Bank’s €4.2bn in deposits over €100,000 could be wiped out entirely.
The deal, which doesn’t need Cyprus parliament approval, will allow the European Central Bank (ECB) to keep its emergency lifeline open to Cypriot banks today.
Jeroen Dijsselbloem, the Dutch finance minister and president of the Eurogroup Council, said: “It’s been a particularly difficult road to get here. We’ve put an end to the uncertainty that has affected Cyprus and the euro in recent days.”
The losses on large depositors will be achieved through restructuring of the country’s two largest banks viz: Bank of Cyprus and Laiki Bank. Cyprus already passed a new banking legislation on Friday.
International monitors are scheduled to meet today to decide whether Cypriot banks would reopen on Tuesday.
The previous bailout agreement signed last week included a 6.75 per cent levy on small deposits.
Dijsselbloem said no bailout money would be used to recapitalise Bank of Cyprus, meaning authorities must now calculate how much cash from the bank’s large deposit holders must be bailed in to get the lender up to healthy, EU-mandated capital levels.
“I’m happy because we shall have a programme and its in the best interests of the Cyprus people and the European Union, said Nicos Anastasiades, the Cypriot president.
Olli Rehn, European Union commissioner for economic and monetary affairs, said the week-long upheaval was expected to deepen the island’s recession. “It’s clear the depth of the financial crisis in Cyprus means the near future will be very difficult for the country and its people,” Rehn added.