Cyprus Bailout Deal Gets Last Minute Approval
European Ministers approved a new plan from Cyprus to unlock the 10 billion euro bailout which the country needs to save its banking system from collapse.
Cypriot banks, which have been closed for over a week to prevent bank runs while the government negotiated a bailout deal, have been hit hard by exposure to the struggling Greek economy.
In order to release the bailout funds, the government of Cyprus has agreed to restructure its banking sector. The Popular Bank of Cyprus, the country’s second largest banking institution, will now be split into a ‘good bank’, and a ‘bad bank’, separating good debt from bad.
Plans to impose a one of levy on bank accounts with balances less than 100,000 euros have been dropped from the deal following strong public opposition. Within the Popular Bank of Cyprus, these accounts will be transferred to the ‘good bank’.
Accounts with balances over 100,000 euros, however, will be hit hard with a 40% one-off levy. These accounts, which are not insured under European law, will be transferred to the ‘bad bank’ and will be used to resolve the banks bad debt. For the moment these larger accounts will remain frozen.
Markets across Europe rose in early trading on Monday morning in response to the last-minute deal.
The deal as it has been agreed will raise 4.2 billion euros of the 5.8 billion which the European Union and International Monetary Fund required from Cyprus as part of the conditions attached to the bailout.
Negotiations to agree this deal went right down to the wire, with the announcement coming just hours before the deadline this morning.
European markets rose in morning trading on the back of the agreement. Markets around the world had previously fallen on the back of uncertainty surrounding the bailout of Cyprus.
IMF chief Christine Lagarde commented on the agreement, saying: “We believe that this will form a lasting, durable and fully financed solution.”
The Finance Minister of Cyprus Michalis Sarris also welcomes the deal, saying: “It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone. A long period of uncertainty and insecurity surrounding the Cyprus economy has ended.”
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