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The Cypriot government on Thursday said the country’s economy may shrink by 13 percent this year, far more than than the 8.7 percent initially predicted.
Economists say the hit taken by big depositors in the bailout package will prove fatal for business confidence.
“Big unsecured depositors are bailed in and they will lose more than 40% of their money in the bigger Cypriot banks is something ward off foreign investors in the coming years,” said ING’s Peter Van den Houte.
“I think that the financial sector is not only hurt by the lack of credibility but also by the fact that the investors have been losing their money.”
And if EU bailout history repeats itself, eurozone ministers will have to stump more cash further down the line.
Said Van den Houte: “We can imagine that the Cypriot economy falls back with more than 20% in total over the coming years. Because of that the government debt will continue to grow and that at the end of the day we might need a second bailout.”
ECB chief Mario Draghi on Thursday criticised Cyprus’ initial plan to tax insured bank depositors, as well as uninsured ones.