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Merkel 'very pleased' with Cyprus bailout deal

The Local · 25 Mar 2013, 15:34

Published: 25 Mar 2013 10:55 GMT+01:00
Updated: 25 Mar 2013 15:34 GMT+01:00

"The result is a fair one for everybody involved," Schäuble told a news conference.

"I think it's a good one" and it will "serve as a basis for negotiations with the troika" of international creditors, he said, adding that it would "help win back lost confidence" and shore up Cyprus's finances.

The deal will resurrect a bailout for its government, but only after a radical downsizing of the island's financial sector.

"I am very pleased that a solution for Cyprus was successfully reached last night which meant that the country's insolvency was averted," said Chancellor Angela Merkel in a statement ion Monday.

The deal was a "fair distribution" of the burden and "also requires those who have contributed to causing these undesirable developments to take responsibility", she said.

"And that's as it should be."

Merkel said: "On the one hand, the banks must take responsibility for themselves. That's what we have always said. We don't want taxpayers having to save banks but that banks save themselves."

Cyprus President Nicos Anastasiades battled for 12 hours with his eurozone partners and the IMF before the last-minute deal was reached.

In the end, he let one banking chain go to the wall and left major investors in the island's biggest bank – many of whom are Russian – take a giant hit. He was, he said, content with the deal.

And the head of the Eurogroup of finance ministers, Jeroen Dijsselbloem of the Netherlands, insisted: "We've put an end to the uncertainty that affected Cyprus and the euro area over the last few days."

Under the terms of the agreement the island's second largest lender Laiki (Popular Bank) will be wound up overnight, an operation Dijsselbloem said would deliver a €4.2 billion ($5.5 billion) saving. Small savers would be protected.

Schäuble told journalists: "Unsecured deposits of more than €100,000 are frozen and will participate in the necessary recapitalisation" of the banking sector.

Banks to reopen on Tuesday

Loans to the government in Nicosia once the parliament there approves the deal in April, will total €10 billion ($13 billion).

The Bank of Cyprus, the island's foremost lender, survives – but it will have to endure a major "haircut" on all deposits of more than €100,000.

That is a massive blow to its major investors – and the bank holds the lion's share of the island's Russian deposits.

Cypriot Finance Minister Michalis Sarris conceded that Russia's reaction would likely prove "very complex", with "loyal international partners disappointed and disillusioned."

As the crisis unfolded last week, Russian leaders refused to supply fresh aid or extend a 2014 repayment date on an existing €2.5-billion loan to Cyprus.

But the previous plan for a raid on all savings, which last week provoked angry responses from everyone from Cypriot pensioners to Russian President Vladimir Putin, has been ditched.

Dijsselbloem said the new deal, reached after a week of turmoil that plunged the eurozone back into crisis, was a "much better" outcome.

Key details of the deal remained sketchy, with EU and IMF officials working out the likely percentage levels "over the coming weeks".

Bailout bosses could "not put a figure on that," Dijsselbloem said. He could not say when the banks on Cyprus would re-open, nor when restrictions on cash withdrawals and other capital controls would be eased.

The banks had been scheduled to reopen on Tuesday after 10 days.

"We have to find a balance between prudence and stability," Sarris told reporters. "We are going to decide as quickly as possible the exact day when the banks will reopen," he added.

The final bailout will also involve a Cypriot government austerity programme, privatisations and tax changes at a time of deepening recession given job losses at banks and companies losing out on deposits.

European Union Euro Commissioner Olli Rehn said new economic forecasts for Cyprus would need to be drawn up quickly to take account of the deal.

Rehn said the Cypriot government would decide when to lift capital controls, which saw daily withdrawal limits at cash machines reduced to as little as €100 per day on Sunday.

International Monetary Fund head Christine Lagarde said the deal provided "a comprehensive and credible plan to deal with the current economic challenges in the country".

Once the technical details had been worked out she expected to recommend to the IMF executive board that the organisation provide Cyprus with financial support, she said in a statement.

Cyprus fifth EU country to get international aid

A major sticking-point throughout the talks was the European Central Bank's demand for the Bank of Cyprus to assume €9 billion in Laiki liabilities to Frankfurt: during Sunday's talks, Anastasiades finally accepted that.

The ECB had threatened to halt life-support funding for Cyprus on Monday if there was no deal, but Dijsselbloem said he expected that support now to continue.

The volume of Cyprus sovereign aid is a pittance compared with Nicosia's closest ally Greece, which needed hundreds of billions in the eurozone's first bailout, which started almost exactly three years ago.

But some leaders and economists had worried that the fallout from the Cyprus crisis could spread to other troubled economies such as Spain and Italy.

This latest deal means Cyprus becomes the fifth eurozone country to win international aid for its banks, after Greece, Ireland, Portugal and Spain.

News of the Cyprus deal boosted the Asian markets Monday. The euro also enjoyed a bounce, as investors bought on the back of a deal they hope will draw a line under the crisis, which sent shares tumbling last week.

AFP/hc

The Local (news@thelocal.de)

Your comments about this article

12:13 March 25, 2013 by pepsionice
It's fair to everyone with a 100k Euro account or smaller. The Russian billionaires? They lose big-time, and they will be coming to visit Germany and shell out some pay-back sooner or later. You don't yank a couple of billion from these guys and think they will be nice about it.
12:32 March 25, 2013 by adipk
the only thing what i know about such deals is........ work more if you are Germany coz you have to give money to jobless people. Since 7 years i am trying to understand why i am working when i can get more money without working. Even if i am working than due to such deals i have to pay more tax and related stuff. force to pay high price for daily use commodities. i hope the age of retirement will be increased to 85 years soon.

Emjoy
15:13 March 25, 2013 by smart2012
Russian guys are now freezing assets of German companies in Russia... This si the risk u have when u play with guys who own the money
15:26 March 25, 2013 by sonriete
the ECB protected itself completely in these negotiations, their entire 9 billion in loans were put in the "good bank" while the Russian private depositors lose everything. Obviously the ECB was privy to far more information about the status of these banks when they chose to lend to them, they had information private depositors could not possibly have had, yet they are made whole? This is fair? I find it frightening when the Russian mafia comes out appearing to have more integrity than the German finance minister, and I suspect there will be hell to pay for this when the dust settles.
15:26 March 25, 2013 by wethepeople2012
What is happening in Cyprus is simply called "Theft". You can twist anyway you want but when you take from someone without their authorization, it's theft. Why is it illegal for me to walk in a bank and steal but it's legal for the bank to steal from their depositors? I can say with 100% certainty that Cyprus will no longer be considered a "safe" haven for savers... Just as what happened in Switzerland when the banks stole and sold info on their customers. Once the trust is gone...it's gone for good!
16:54 March 25, 2013 by jillesvangurp
Having a lot of unsecured deposits in a foreign bank in a country that is known to have financial issues and that is known to be a tax haven is not the EU's problem. That's called taking a calculated risk with your money.

At least the russians get to keep some of their money this way. If the banks had become insolvent, there would be nothing left. That's what happened in Iceland a few years ago. The reason that didn't happen here was the chain of events that would have followed, which is what this really is about.

That scenarion would go as follows: Banks roll over and die, deposits are wiped out completely, country goes bankrupt, country drops out of the EU, its new currency takes a nose dive, country defaults on its debts (courtesy of Germany et. al), country slowly recovers. The defaulting on the debts bit scares the hell out of the debt holders in the EU because it will have a ripple effect. This happened in Iceland and it allowed them to recover quickly afterwards. Likewise for Argentina.

Russia is pissed off because it bet the EU would bail the banks out. They had their chance to do something constructive and opted not to. Maybe they should fix their banking system and be less dependent on their citizens parking their untaxed income abroad.
18:24 March 25, 2013 by sonriete
I see the point of the above commenter, what you leave out though is that those Russian depositors came to Cyprus with their money precisely because it was in the EU and the euro zone, the calculated risk perhaps was in believing all the talk from EU officials in their endless statements that the euro and European banks were solid and in Draghis own words, would be protected in unlimited fashion by the ECB. In this bailout the ECB certainly made sure they themselves were protected but they hung out the depositors to dry. This is no way to build confidence. They say Cyprus is a unique case, a year ago they says exactly the same about Greece. If I had any deposits in Italy or Spain, I would surely be withdrawing them right now, they look like the next "unique" cases coming into view.
21:51 March 25, 2013 by Istabraq
Good. My 500 euro deposit in my cyprus holiday account is safe for now.

Seriously. This is a good result as far as I can see. However I am sure there will be repercussions from Russia. Maybe higher gas prices for Germany are in the pipeline. I think the Cyprus crisis is not similar to that of Ireland or Spain and needed a different solution than in those countries.
00:24 March 26, 2013 by Steve1949
I don't see how this has bailed out Cyprus. Maybe in the short term, but when investors start moving their money into safer haven's outside of the control of the EU and people start taking their savings out of the banks Cyprus will be right back where they started. This won't stop with banks in Cyprus.
10:30 March 26, 2013 by Deutschguy
Tax havens and secret banking need to end. What happens is that ordinary working families pay their taxes, yet put up with partially or ineffectively funded, public infrastructure and services. The wealthiest do not pay their fair share in the countries where they earn it. Or they simply "buy" a government and make it corrupt.

While this ECB move might upset the oligarchs, mafiosi, and Romneys of the world, it works out better for working people and citizens. The US needs to take a more assertive role in similar actions, by simply cutting off diplomatic ties to tax havens and making it illegal to conduct trade with them, e.g., You have secret banking, then US planes and citizens can't land there. And your planes can't land in the US, either. It would reform it overnight.

The CIA and Black Ops can still fund their operations through the fake non-profits and NGO's that they do today. I have no sympathy for those Russian oligarchs.
23:20 March 26, 2013 by JDee
so we're all racist against Russians now? no wonder they will be furious, as I would, it would have been worth way more than 10 Bill to settle this in an honourable fashion. The only condition that needs imposing is to ask Cyprus to abandon the overly attractive tax rates which brought the money there in the 1st place. The Russians have done nothing illegal. The policy is not consistent with the previous bailouts.
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