Monday

5th Dec 2016

Savers to share the pain in €10bn Cyprus bailout

  • Cypriot bank savers will lose 10% of their money (Photo: jnocca93)

Depositors will lose up to 10 percent of their savings as part of a €10 billion bailout for Cyprus agreed on Friday (15 March)

The Mediterranean island will become the fifth eurozone country to receive a rescue package after eurozone ministers reached agreement following all-night talks on Friday (15 March).

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

However, in a departure from all previous rescue packages, people with Cypriot bank accounts will share in the pain.

People with less than €100,000 face a 6.75 percent levy, while those with more will pay 9.9 percent.

The one-off tax is expected to raise €5.8 billion.

Speaking with reporters after nearly 10 hours of talks, Dutch finance minister Jeroen Djisselbloem, who chairs the Eurogroup, commented that "as it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders."

He added that the "unique measure" was needed to trim the size of the Cypriot banking sector, describing it as "justified, in terms of burden sharing, to also involve the depositors."

The final bailout figure is significantly below the €17.5 billion previously estimated by Cyprus.

Djisselbloem said that the smaller bailout package would enable Cyprus to reduce its debt pile below 100 percent of GDP by 2020.

The Cypriot bank sector is on the verge of collapse, with assets and liabilities worth nearly €120 billion - almost eight time the size of the island's annual GDP.

The banks also took a €4.5 billion hit as a result of the haircut imposed on private holders of Greek debt in 2012.

Cyprus opened talks on a rescue package last summer, but negotiations stalled after the outgoing Communist President Demetris Christofias refused to sign off a deal.

The bailout talks were also complicated by allegations that Cypriot banks have laundered money for Russian oligarchs.

There is an estimated €20 billion from Russian depositors in Cypriot banks.

Moneyval, an audit body connected to the Strasbourg-based Council of Europe, is expected to produce a report on the issue later this month.

Meanwhile, Russia is expected to play its part by extending the maturity date of a €2.5 billion loan to 2021.

EU economic affairs commissioner Olli Rehn noted that Moscow is "ready to make a contribution with an extension of the loan and a reduction of the interest rate."

Cypriot finance minister, Michalis Sarris, said that he agreed to the package reluctantly.

"I am not happy with this outcome in the sense that I wish I was not the minister that had to do this," he said.

"The system did not leave us with any options," he added.

In a bid to prevent investors trying to take their money out of Cyprus, Sarris revealed that it is no longer possible to make large bank withdrawals.

For her part, International Monetary Fund chief Christine Lagarde also backed the deal. She indicated that the IMF is likely to make a contribution, but she said "the exact amount is not yet specified."

Analysis

Doubts hang over EU investment plan's future

Questions of value for money and a lack of transparency complicate adding almost €200 billion more and extending the Juncker investment plan to 2020.

News in Brief

  1. Talks on wholesale roaming rules to start
  2. Lead MEP Dieselgate committee: Italy and Slovakia will cooperate
  3. Transparency NGO sues EU commission on Turkey deal
  4. Pro-EU liberal wins UK by-election
  5. Finnish support for Nato drops, Russia-scepticism grows
  6. Cyprus talks to resume in January
  7. Documents from German NSA inquiry released
  8. Transport commissioner 'not aware' of legal action on emissions

Stakeholders' Highlights

  1. CESIElects Leaders and Sets Safety & Health at Work and Gender Equality Among the Guidelines For Next Term
  2. European Gaming & Betting AssociationContinues to Grow its Membership and Welcomes its Newest Member Association
  3. ACCASupports the Women of Europe Awards, Celebrating the Women who are Building Europe
  4. European Heart NetworkWhat About our Kids? Protect Children From Unhealthy Food and Drink Marketing
  5. ECR GroupRestoring Trust and Confidence in the European Parliament
  6. UNICEFChild Rights Agencies Call on EU to put Refugee and Migrant Children First
  7. MIRAIA New Vision on Clean Tech: Balancing Energy Efficiency, Climate Change and Costs
  8. World VisionChildren Cannot Wait! 7 Priority Actions to Protect all Refugee and Migrant Children
  9. ANCI LazioRegio-Mob Project Delivers Analysis of Trasport and Mobility in Rome
  10. SDG Watch EuropeCivil Society Disappointed by the Commission's Plans for Sustainable Development Goals
  11. PLATO15 Fully-Funded PhD Positions Open – The Post-Crisis Legitimacy of the EU (PLATO)
  12. Access NowTell the EU Council: Protect our Rights to Privacy and Security