Cyprus wins 10bn euro bailout
Brussels - Cyprus early Saturday secured a long-awaited bailout of up to 10 billion euros (13 billion dollars) to bolster its troubled banking sector and public finances, but not without bank depositors taking a significant hit through a new tax. "I will be making a recommendation to the board that the IMF participate in the financing of this programme," managing director Christine Lagarde said in Brussels after talks between eurozone ministers resulted in a rescue package.
International Monetary Fund Managing Director Christine Lagarde said the IMF is interested in joining the rescue programme. She said the plan for Cyprus was "sustainable," fully financed and includes appropriate burden-sharing.
In another development, Eurozone finance ministers also agreed Saturday to grant Ireland and Portugal more time to pay back their bailout loans, to help them resume borrowing on financial markets.
In Cyprus, deposits of less than 100,000 euros will be levied at 6.75 per cent and higher deposits at 9.9 per cent. The one-time "stability levy" would be applied immediately, with Cypriot authorities moving to freeze corresponding amounts in bank accounts, as the tax is expected to be made law by the time banks on the island reopen on Tuesday after a holiday.
The new tax - the first of its kind applied as part of a eurozone bailout - is expected to generate 5.8 billion euros. It will apply to both Cypriot residents and non-residents. About one-third of deposits are in the hands of foreigners, especially Russians and British.
"It is not a pleasant outcome, especially of course for the people involved," Finance Minister Michael Sarris said in Brussels after negotiating the bailout deal. "But we believe it is something that is - compared with other possible outcomes - the least onerous."
The tax is not meant to be "penalizing" the debt-ridden island, the leader of the eurozone’s finance ministers, Jeroen Dijsselbloem, insisted Saturday after the negotiations with Sarris. He called the tax a "very fair way of sharing the burden."
European Central Bank board member Joerg Asmussen described the levy as "appropriate" and "tailor-made" for Cyprus. He said "there is no risk that this will happen" to depositors in other bailout countries.
The debt-riddled island is the fifth country in the eurozone to receive a bailout, after Greece, Portugal, Ireland and Spain. It is the first to have a full rescue package from the eurozone’s new bailout fund, the European Stability Mechanism.
Nicosia had haggled over the details for more than half a year with the European Commission, European Central Bank and International Monetary Fund (IMF).
The pressure was on to reach a deal Friday during the special meeting of eurozone finance ministers, amid concerns that dragging out the issue much longer could reignite the currency bloc’s debt crisis. The talks lasted almost 10 hours.