Last-minute talks in Brussels secured a €10 billion rescue package for Cyprus in the early hours of this morning, saving the country from bankruptcy and a possible exit from the Eurozone. The news encouraged a boost to global stock markets.
As part of the deal, the Bank of Cyprus will be restructured, while the country’s second largest bank, Laiki, will be separated into a “good bank” and a “bad bank”. The “bad bank” will be dissolved over time, while the “good bank” will be folded into the Bank of Cyprus, explained Jeroen Dijsselbloem, chairman of Eurogroup. Lenders to Laiki will suffer damaging losses, and deposit-holders of less than €100,000 will see their money transferred to the Bank of Cyprus.
Cyprus is now the fifth country to receive an EU bail-out, after Greece, Ireland, Portugal and Spain. A statement released by Eurogroup revealed that measures are geared towards brining Cyprus’s domestic banking sector to the EU average by 2018. Cypriot authorities, meanwhile, have voiced their commitment to increasing their efforts in the areas of fiscal consolidation, structural reforms and privatisation.
“It’s clear that the depth of the financial crisis in Cyprus means that the near future will be very difficult for the country and its people,” stated Olli Rehn, EU commissioner for economic and monetary affairs during a joint press conference with Eurozone finance ministers. He assured that the Commission will do “everything possible to alleviate the consequences of this economic shock” and help to protect those most affected.
Managing Director of the IMF, Christine Lagarde, announced that she expects to be in a position to make a recommendation to the IMF executive board in the coming weeks aimed at including the financial participation of the IMF in the deal. Lagarde added that she believes that a “lasting, durable and fully financed solution” has been reached.
Russian Prime Minister Dmitry Medvedev reacted with fury, reportedly stating “In my view, the stealing of what has already been stolen continues”. It is estimated that Cypriot banks harbor approximately €25 billion in Russian assets, an amount that exceeds Cyprus’s GDP, and most of this money is believed to be corrupt.
Cyprus initially requested a €5 billion loan from Russia, which already lent €2.5 billion in December 2011. Russian-based Interfax news agency reported, however, that President Vladimir Putin has called for his government to review the terms for restructuring the existing €2.5bn loan today.