ECB & IMF to Cyprus: "You're Screwed"

Cyprus told: take bank levy or leave euro


The European Central Bank has threatened to cut off funds propping up Cypriot banks on Monday, precipitating the island's exit from the euro if agreement was not reached on Sunday night at the emergency meeting between eurozone finance ministers, the president of Cyprus Nicos Anastasiades, and the bailout troika of the IMF, European Commission and the ECB.

The Europeans, with the Germans and the IMF taking a particularly hard line, demanded the winding up of Cyprus Popular Bank, the country's second biggest, and the restructuring of Bank of Cyprus, the biggest financial institution.

The parties considered new proposals that had emerged over the weekend with European officials speaking of a levy of up to 25% on Bank of Cyprus depositors with accounts holding more than €100,000, plus a further levy of up to 5% on similar deposits in other banks.

"The numbers have not changed. If anything they've got worse," said Wolfgang Schäuble , Germany's finance minister. He said that last week's agreement to raise €5.8bn had to be achieved. This time, however, savers with less than €100,000 would be spared, meaning the burden would fall much more heavily on the wealthy than the 9.9% levy proposed for their accounts last week.
Comment: Image sources: IMF, ECB, Government of Cyprus. Think it could not happen here? Our President and Democratic controlled Senate are unconcerned. More.


  1. The deal: Cyprus Gets New Bailout Deal
    - Bid to Remain in Euro Zone Imposes Bank Controls, Steep Losses on Large Depositors

    But lasting damage has likely been inflicted on the Cypriot economy. Officials said they believe the country will now need strict controls on money transfers in and out of the economy in the coming weeks or possibly months, cutting off its citizens and companies from much of the rest of the euro zone's financial system. And the program aims to slash the size of Cypriot banks, perhaps forever ending the country's status as an offshore tax haven and financial-services center.

    Cyprus could see its economy contract by 10% or more in the years ahead, officials and economists said.

    "The near future will be very difficult for the country and its people," Europe's economics commissioner, Olli Rehn, said after the negotiations ended.

    The deal lines up €10 billion ($13 billion) in financing for the government and shuts Cyprus's second-largest bank, Cyprus Popular Bank PCL, imposing steep losses on deposits with more than €100,000, European officials said. The country's largest bank, Bank of Cyprus PCL, will also be downsized aggressively, with large depositors there taking a hit.

    The bank restructuring doesn't need approval by the Cypriot Parliament. German Finance Minister Wolfgang Schäuble said Monday that the legislation needed to complete the restructuring of the Cypriot banking system is already in place.

    He said the deal "will lead to fundamental changes" in the Cypriot banking sector and reduce its size to the European Union average.


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