Cyprus bailout: Large deposits will be seized and second-largest bank closed in €10bn EU bailout deal

Under the new agreement the country's second-biggest bank will be wound down as  holders of deposits of more than €100,000 face big losses

Brussels

An 11th-hour deal with the EU, which has saved the Cypriot economy from the brink, will see investors with more than €100,000 in the nation’s largest banks forfeit a large chunk of their deposits.

The punishing deal – which has been approved by the eurozone finance ministers – will allow the country to receive the €10bn (£8.5bn) bailout it needed before the European Central Bank pulled funding and sent the island on the path to bankruptcy and a possible exit from the single currency.

Under the new agreement, all bank deposits under €100,000 will be secured and guaranteed by the state. The country's second-biggest bank, The Popular Bank of Cyprus – known as Laiki – will be closed whilst holders of deposits of more than €100,000 face big losses.

Laiki will be split into good and bad banks, with its healthy assets eventually absorbed into Bank of Cyprus.

The Eurogroup said in a statement: “The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.

“The Eurogroup further welcomes the Cypriot authorities' commitment to take further measures. These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.”

The president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, said in a press conference in Brussels that the new deal is better than last week’s proposal because it concentrates on the country's two major banks and that the agreement had “put an end to the uncertainty” around Cyprus' economy.

"I would l like to emphasis that none of these measures will affect deposits below €100,000," he added.

Meanwhile, a powerful firecracker has been detonated inside a branch in the country's largest lender, the Bank of Cyprus. Cyprus News Agency quoted police sources as saying the explosion late caused some damage to the branch in Limassol. According to the report, two people smashed a glass door and set off the firecracker but firefighters quickly extinguished the flames.

Sparks flew at the negotiations between President Nicos Anastasiades and the “troika” of the International Monetary Fund (IMF), EU and ECB, with the President at one point threatening to resign as troika officials pressed him to wind down two bloated banks.

Cyprus was asked to raise a €5.8bn contribution to the nearly €17bn it needed to stay afloat, but had been resisting IMF pressure to radically restructure two of their biggest lenders, which were saddled with billions of euros in debt by the crisis in Greece.

The Central Bank of Cyprus moved to stop large withdrawals from those two lenders, imposing a €100 daily withdrawal limit at their cash machines.

There are fears that Cypriots will race to the banks when they reopen tomorrow and money will flood out of the country.

Moscow also reacted with anger today to the bailout of Cyprus that will result in heavy losses for foreign depositors at the Mediterranean island's banks, many of which are Russian.

"The stealing of what has already been stolen continues," Prime Minister Dmitry Medvedev was quoted by news agencies as telling a meeting of government officials.

Cypriot MPs had last week voted down a bill requiring all account-holders to forfeit a percentage of their savings. But as the days passed and the nation inched closer to bankruptcy, the Finance Minister performed a U-turn and said the levy was back on the negotiating table. Eurozone finance ministers and the IMF had refused to budge on their demand that Cyprus should come up with €5.8bn to qualify it for €10bn in assistance. The German Finance Minister, Wolfgang Schäuble, said: “We haven’t got much further in the last week. The numbers have not changed; if anything they have worsened.” Asked what new solution there could be, he replied: “What we agreed last week.”

His Austrian counterpart, Maria Fekter, said: “The ECB cannot just provide drawn-out euthanasia for the ailing banks. Therefore it is necessary that stable reforms are carried out.”

Eurozone states, led by Germany, say Cyprus’s current status as an offshore banking haven popular with Russian investors was simply not sustainable. The bloc is also desperate to stop the turmoil in Cyprus spilling over into other eurozone nations, and there has been open talk among officials that the Mediterranean island could be sacrificed to save the single currency.

The ECB had been propping up the crippled banks, but had threatened to pull the funding today is Cyprus was unable to reach a deal with the troika.

The island of 860,000 people accounts for only 0.2 per cent of eurozone GDP, but if there is a run on the banks – if they reopen as scheduled tomorrow – delicate investor confidence in other eurozone states could be shattered, causing a wider flight of capital from the eurozone.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
The Queen and the letter sent to Charlie
football
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
News
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<p>
<b>Kathryn Williams</b>
</p>
<p>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
<p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
<p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
News
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
Voices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?