Savers to take a hit on their deposits as Cypus becomes fifth country to receive eurozone bailout

By Harry Glass

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Eurozone strife: Cyprus will have to trim its deficit, shrink its troubled banking sector, raise taxes and privatise state assets

Eurozone strife: Cyprus will have to trim its deficit, shrink its troubled banking sector, raise taxes and privatise state assets

Eurozone ministers struck a deal on Saturday to hand Cyprus a bailout worth €10billion (8.6billion) to stave off bankruptcy.

The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the eurozone for financial help during the region's debt crisis.

But the agreed package means those with deposits in Cypriot banks exceeding €100,000 (86,000) will have to accept a one-time hit of 9.9 per cent on their savings.

The levy will be 6.7 per cent for any deposits below that. These will take effect on Tuesday after a bank holiday on Monday, with the aim of saving almost €6billion.

Almost half of the country's depositors are believed to be non-resident Russians, but most of those queuing on Saturday at automatic teller machines to pull out cash appeared to be Cypriots.

'I wish I was not the minister to do this,' Cypriot Finance Minister Michael Sarris said after 10 hours of late-night talks in Brussels where the package was hammered out.

'Much more money could have been lost in a bankruptcy of the banking system or indeed of the country,' he said, adding that he hoped a levy and bailout would mark a new start for Cyprus.

In return for the rescue loans, Cyprus will trim its deficit, shrink its troubled banking sector, raise taxes and privatise state assets, said the Netherlands' Jeroen Dijsselbloem, presiding over 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, speaking after nearly 10 hours of negotiations.

Knock-on effect: Cyprus' banks were badly exposed to Greece, which has had to be bailed out twice

Knock-on effect: Cyprus' banks were badly exposed to Greece, which has had to be bailed out twice

While the bailout for the east Mediterranean island is many times smaller than those of Greece or Ireland, it was still considered crucial to the eurozone's future because a default even by a small country could rock 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 recapitalise 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.

Analysts warned taking savers' money would possibly lead to bank runs.

If investors were to move their large deposits to more stable eurozone countries like Germany, banks in southern Europe's economies might be considerably weakened and possibly require new bailouts.

 

Cyprus, which first applied for a bailout last summer, was not in imminent danger of bankruptcy, as it faces its next bond redemption in June.

But the European Central Bank, concerned that prolonged uncertainty over Cyprus could hurt market sentiment across the eurozone, has pushed for a swift deal, even threatening to cut off the country's financial system from emergency funding.

The finance ministers' agreement still has to be approved by parliaments in several eurozone nations, though EU officials say everything should be done by the end of the month.

To appease its potential rescue creditors, Cyprus has already accepted an independent audit of its banks, which hold billions in Russian deposits, to soothe concerns voiced by Germany, France and others that they launder dirty Russian money.

 

The comments below have not been moderated.

Buy physical gold an silver. It's the only option. FIAT money is always FIAT money. Forget it.

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amber, it appears that the grab will apply even to those who take their money from banks before the grab happens. Google silverdoctors and see.

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It seems that the theft will even apply to those who were able to able to empty their accounts by atm over the weekend. Google silverdoctors and read the latest

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Soon coming to us, just watch.........

Click to rate     Rating   3

Frankie's banking Armageddon could come sooner than anyone thinks. All eyes are on Cyprus.

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john s - (would the s stand for shill by any chance?) china and russia are buying gold and silver and dont let any of their own production out of country. They see what is coming. And as for your mad franki comment, this is just immature. You know what is coming just as frankie and I do. Thing is you dont want folks to be protecting themselves from it. No normal member of the public, after reading this article would make comments such as you are.

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The ordinary Cypriot people are stunned by this decision to forcibly take money from their bank accounts. Nothing can be done until Tuesday when it will be a normal working day - but several wonder if the banks will open. The following two weekends also have a public holiday Monday afterwards, so it will be a frenzy this week trying to get out as much money as we can.

Click to rate     Rating   11

to the issue of gold confiscation, its happening already because people are being forced to sell their gold to the we buy gold outlets due to debt and hard times. Its being done by stealth this time. The little that is left in strong hands by people who get it and are buying now instead of selling, if you dont let them know you have it and arent stupid enough to hand it over, then no problem. Remember last time they confiscated, gold was revalued shortly after from $20 to $35. .

Click to rate     Rating   6

The ordinary people who did not cause these problems are the ones being made to pay because they are the least able to fight back. Will the ministers, bankers and civil servants take a cut in salaries? Will the power of the trade unions be curbed? To simply take money from peoples' accounts is daylight robbery and this action will surely cause mass withdrawals of funds from banks in other European countries. Cecil Habib, Cyprus, 17-3-13

Click to rate     Rating   9

Not a problem. Our last Communist President went to Russia and bought €1b worth of second-hand tanks. Problem is we can't get them off the Island as they will sink in the sea, and tanks don't last long without air support and we have no planes. So anyone want to buy a second-hand slightly used tank squadron for half price?

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