Cyprus has clinched a last minute deal with international lenders to secure a 10 billion euro bailout and avoid financial meltdown.
A casualty of the agreement will be its second largest bank, which will close down, inflicting heavy losses on uninsured depositors including many wealthy foreigners.
Eurogroup President, Jeroen Dijsselbloem said:
“I would like to emphasize that none of these measures will effect deposits below 100,000 euros. There should be no doubts about that. We reaffirmed today the importance of fully guaranteeing these deposits in the European Union.”
The plan which was swiftly endorsed by EU finance ministers will involve the closure of the Popular Bank of Cyprus, also known as Laiki, resulting in thousands of redundancies.
All deposits below 100,000 euros will be moved to the Bank of Cyprus, to create a so called “good bank”.
Deposits above 100,000 euros are not guaranteed under EU law and will be used to resolve debts.
Euronews’ correspondent in Brussels, Efi Koutsokosta says: “After a marathon of negotiations, finally white smoke has risen. Nicosia will get the first part of its 10-billion-euro bail out package at the beginning of May and a special task force will be set up to help the Cypriot economy.”
"Disaster avoided" for Cyprus
Disaster avoided for the many, maybe; pain for the few, for sure; and a palpable sense of relief on the podium as Cyprus’s Finance Minister promised the banks would reopen soon after the last-ditch deal on the EU bailout was clinched.
Laiki bank will go under along with thousands of jobs, but the alternative was truly horrendous for Cyprus.
“Essentially it’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone,” explained Michael Sarris.
Europe’s sacrosanct 100,000 euro deposit guarantee has been maintained, but Cyprus is not yet off the hook.
“I don’t think that there is any denying that the Cypriot people will have to go through some tough times and will suffer the consequences of a protracted period where wrong decisions were made,” added Sarris.
Some people were out on the streets to protest following the announcement, but although small investors have been protected, a coach and horses has been driven through the rules for big investors. The EU may have said all along Cyprus was an exceptional case, but where will the big money go now? Equally, citizens in EU member states groaning under austerity might wonder when their governments will do more to protect them.