Cyprus agreed to the outlines of an international bailout, paving the way for 10 billion euros ($13 billion) of emergency loans and eliminating the threat of default.
The accord between Cyprus and the “troika” representing international lenders was reached in overnight talks in Brussels and ratified by finance ministers from the 17-nation euro area.
“It’s in best interest of the Cyprus people and the European Union,” Cyprus President Nicos Anastasiades told reporters.
The euro rose after the provisional agreement was struck that would make Cyprus the fifth country to tap a rescue since the euro debt crisis broke out in Greece in 2009. The European currency rose 0.3 percent to $1.3023 at 2:15 a.m. Brussels time.
As euro finance ministers milled around for a meeting that began more than six hours after the scheduled 6 p.m. start time, Anastasiades brokered the bargain with officials including European Union President Herman Van Rompuy, European Central Bank President Mario Draghi and International Monetary Fund Managing Director Christine Lagarde.
The agreement calls for Cyprus Popular Bank Pcl to be shut down and split. The Bank of Cyprus Plc would take over the viable assets of the failed bank along with 9 billion euros in central bank-provided emergency liquidity aid, according to three EU officials who asked not to be named because talks are ongoing.
Deposits below the EU deposit-guarantee ceiling of 100,000 euros will be protected, and a loss of no more than 40 percent will be imposed on uninsured depositors at the Bank of Cyprus, two EU officials said. Uninsured depositors at Cyprus Popular would largely be wiped out, two other officials said.
It was the second time in nine days that Cyprus struck a deal with European creditors and the IMF. The first accord, reached in the early hours of March 16, fell apart three days later when the Cypriot parliament rejected a tax on all bank accounts on the island.
With the ECB threatening to cut off emergency financing for tottering banks as soon as today, Cyprus’s leaders bowed to creditors’ demands to find another way of shrinking the Mediterranean island’s financial system.
Bloated by investments from Russia, Cypriot banks have assets equal to 750 percent of the country’s gross domestic product, more than double the euro-zone average, the European Commission says. Russian companies and individuals have an estimated $31 billion in Cyprus, according to Moody’s Investors Service.
All the contradictions of the crisis management came together over Cyprus, with name-calling between northern and southern Europe, tensions between unelected central bankers and elected politicians, and the disconnect between slow-moving policy makers and lightning-fast markets.