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Cyprus Deal Sets New Precedent for Bailouts

  • Ken Bredemeier

Man passes entrance of a store that buys gold vandalized with Greek word "thievess," Nicosia, Cyprus, March 25, 2013.

Man passes entrance of a store that buys gold vandalized with Greek word "thievess," Nicosia, Cyprus, March 25, 2013.

Europe's $13 billion bailout of Cyprus is the smallest of the rescue packages for the continent's debt-ridden countries over the last three years, but the terms of the deal could set a precedent for future deals with other financially troubled countries.

The parliament in the Mediterranean island nation last week overwhelmingly rejected a tax on all deposits, even insured accounts, at its troubled banks. The financial institutions have been weighed down with bad investments on Greek government bonds that were devalued to help Athens resolve its financial woes.

In the end, however, the Cypriot government, facing a threat by the European Central Bank to cut off emergency assistance to the country's banks, agreed early Monday to tax depositors with large, uninsured accounts, those over about $130,000. These depositors could lose 30 percent or more of their money. It is cash the Cypriot government said it needed to help raise the $7.5 billion its international lenders demanded before they would agree to the bailout.

But it is the first time that the 17-nation euro currency bloc has tapped savers' accounts to help pay for a bailout. In the past, taxpayers and investors holding government bonds paid the bailout bills.

The Cypriot bailout is the sixth since May 2010. Greece has been rescued twice, totaling $309 billion. Ireland got $87 billion, Portugal $100 billion and the Spanish banking system up to $130 billion.

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