Cyprus President Nicos Anastasiades was confident that the agreement reached with international lenders was the best possible deal and that it was sustainable, despite efforts to curb the island’s banking sector, a thorn in the side of German politicians.
“We have an agreement to the benefit of the people of Cyprus and the EU,” Anastasiades said in a brief statement in Brussels after overnight negotiations with the IMF and EU officials that resulted in approval of a 10 bln euro bailout by the Eurogroup of 17 eurozone finance ministers.
The plan will see the second largest lender, Popular Laiki Bank, shutting down and its “good bank” assets and insured deposits below 100,000 euros transferred to Bank of Cyprus, that will also undertake a debt of 9 bln euros in liquidity assistance provided to Laiki in recent months. The Bank of Cyprus must raise own funds from shareholders for its recapitalization who will receive equity for a haircut on deposits over 100,000 euros.
“The country avoided default and has secured the future of the next generations,” said Finance Minister Michalis Sarris, adding that “we have closed a long period of insecurity for the Cyprus economy.”
“We have not only won the battle, but we have also avoided any exit from the Eurozone. Our aim now is macroeconomic stability through a restructured banking sector, fiscal discipline and reform. We will undergo sacrifices but our economy has the ability to restart.”
Sarris said a few more days will be needed to determine the size of the conversion of debt to equity for depositors of savings above 100,000 euros. He added that banks should open “as soon as possible” and that there will be limitations and problems which is unavoidable in such a readjustment programme.
Meanwhile, IMF Managing Director Christine Lagarde said that the agreement “provides a comprehensive and credible plan to deal with the current economic challenges in the country. The plan focuses on dealing with the two problem banks and fully protecting insured deposits in all banks. It addresses upfront the core problem of the banking system through a clear strategy that ensures debt sustainability and does not excessively burden the Cypriot taxpayer. This agreement provides the basis for restoring trust in the banking system, which is key to supporting growth.”
She added that “we believe the plan provides a durable and fully financed solution to the underlying problems facing Cyprus and places it on a sustainable path to recovery".
"The staff teams of the IMF and the European partners currently in Cyprus will now work to complete the technical details. Based on this and final agreement of the mission in Cyprus, I expect to make a recommendation regarding potential financial support from the IMF to the Executive Board in coming weeks,” she concluded.
