To raise enough new revenues, some creditors were also pushing Cyprus to accept a one-time levy of 10 percent on people with more than €100,000 in their Cypriot bank account. Analysts have warned making depositors breaks a taboo, undermining investors’ confidence in other weaker eurozone economies and possibly leading to bank runs.
German Chancellor Angela Merkel speaks during a media conference at an EU summit in Brussels on Friday.
Cash-strapped Cyprus secured a $13 billion bailout package from its European partners and the International Monetary Fund in a bid to keep the island nation from a bankruptcy that could rekindle the region’s debt crisis, officials said early Saturday.
In return for the rescue loans Cyprus will trim its deficit, shrink its troubled banking sector, raise taxes and privatize state assets, said the Netherlands’ Jeroen Dijsselbloem, president of the Eurogroup meetings of the 17-nation eurozone’s finance ministers.
“The assistance is warranted to safeguard financial stability in Cyprus and the eurozone as a whole,” he said, briefing reporters after almost 10 hours of negotiations.
While the bailout for the east Mediterranean island nation is many times smaller than Greece’s or Ireland’s, it was still considered crucial to the eurozone’s future because a default even by a small country could roil financial markets and undermine investor confidence in other eurozone nations.
To reduce the amount of bailout loans Cyprus needs to keep its government afloat and recapitalize its banks, the ministers agreed to make sizeable Greek operations of the country’s two largest banks, Bank of Cyprus and Laiki, eligible for spare rescue cash from Greece’s bailout accord.
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