News / Europe

Cyprus, Lenders Reach Bailout Deal

Cyprus' Finance Minister Michalis Sarris holds a news conference at the end of a Eurogroup meeting at the European Council building in Brussels, March 25, 2013.
Cyprus' Finance Minister Michalis Sarris holds a news conference at the end of a Eurogroup meeting at the European Council building in Brussels, March 25, 2013.
Lisa Bryant
Stock markets rallied and politicians praised a European Union and International Monetary Fund bailout agreement for Cyprus reached early Monday after marathon talks in Brussels. But analysts predict difficulties ahead for the country as it tries to get onto a more sustainable economic footing.

The $13 billion bailout agreement for Cyprus ends days of financial upheaval and speculation that the tiny island nation might pull out of the 17-member euro currency union.

Speaking to reporters after the talks ended in Brussels, Cypriot Finance Minister Michalis Sarris hailed the deal.

"A long period of uncertainty and insecurity surrounding the Cyprus economy has ended. I believe we have averted literally the possibility of bankruptcy and we have assured the prospects for generations to come," Sarris said.

Watch related video of Cyprus bailout:

Related video of Cyprus bailouti
March 25, 2013 3:56 PM
European Union officials say Cyprus has reached a bailout deal with international lenders that will see the country's second biggest bank shut down.

Also attending the meeting was International Monetary Fund chief Christine Lagarde, who said the talks had yielded a "good result." Lagarde said she would recommend the IMF contribute to the bailout package.

"We believe this will form a lasting, durable and fully financed solution," she said.

The deal radically cuts Cyprus's oversized banking sector, and forces losses on depositors holding more than 100,000 euros (about $130,000) in savings. It also calls on the government to cut spending and carry out economic reforms, including privatizing state assets.

In the short term, economist Tomasz Michalski, of the HEC business school in Paris, predicts Cyprus will likely sink further into recession as it struggles to meet the bailout terms and turn around its economy.

"A lot of people are going to become unemployed. Probably, they're going to have to raise taxes, because there was a very low tax environment," he predicted. "They're going to have to cut government spending a lot, retirement pensions."

Michalski says big foreign depositors in Cypriot banks, including Russians and Britons, will also take a big hit.

"There's a shockwave [going] through all this world of nice, offshore, tax-free havens. If something is going to happen through a tax-free haven, that's the risk you place to hold your money," he warned. "From the perspective of all the high-tax governments in the eurozone, like France, Belgium and Germany, where we know there is a lot of tax avoidance and tax evasion, this is very good news."

The bailout deal ensures that the European Central Bank will continue providing funding to Cypriot banks. But Brussels-based European Policy Center analyst Janis Emmanouilidis says it also means Cyprus must now find another growth strategy.

Countries that received Eurozone bailouts:

  • Spain, 2012: $129 billion
  • Portugal, 2011: $100 billion
  • Ireland, 2010: Ireland: $110 billion
  • Greece, 2010 & 2012: $316 billion
"What the Cypriots have and what their hopes are is that what they're losing in one sector - in the banking sector - they'll be able to cover in the energy sector," noted Emmanouilidis. " Because of the energy [oil] being found off the coast of Cyprus. But that will take a while. It will take a couple of years before these things can be exploited fully."

With the agreement, Cyprus now joins Greece, Ireland and Portugal, who have also received bailouts since the eurozone crisis began in 2009.
  • In late 2009, Greece's government admitted that public debt was far higher than official statistics showed. That led it to accept a bailout package of 110 billion euros in May 2010. When the economy kept weakening, a second bailout was confirmed in February 2012 for another 130 billion euros.
  • Ireland's banks suffered from their exposure to the U.S. mortgage market meltdown as well as to a collapse in the local housing sector. The government stepped in to guarantee creditors and deposits, but as it rescued its banks, the costs grew.
  • Soon Ireland's borrowing rates on bond markets rose so high it was unable to finance itself independently. It secured a 67.5 billion euro package in November 2010.
  • After Ireland's rescue, investors focused on Portugal, the next weakest country in the currency bloc. Their economy was weak and public finances shaky. The government's borrowing rates in bond markets kept rising on fears it finances would become unsustainable.
  • By April 2011, talks on a bailout for Portugal began. In May 2011, the country agreed to a package of 78 billion euros in rescue loans.
  • Spain's weak economy worried European investors because it is much larger than those of Greece, Ireland or Portugal. Giving it rescue loans would test the eurozone's financial capabilities. The Spanish government and eurozone officials agreed on a deal in July 2012 to get up to 100 billion euros in rescue loans directly for the banks.
  • For a few weeks it seemed the Spanish government would also need rescue loans, but its borrowing rates in bond markets fell after the European Central Bank vowed to do "whatever it takes" to save the euro.
  • The European Central Bank's move calmed markets in Europe for months, but Cyprus's financial problems grew. The country's banks had taken losses from Greece's debt writedown, and the government was overwhelmed by the cost of supporting its banks.
  • Cyprus first asked for a eurozone and IMF rescue package in June 2012. The talks continued for months and in March 2013, a new deal was finally crafted to raise the money they needed to qualify for the rescue loans.

You May Like

Germany Celebrates 25 Years of Unity

October 3 is a public holiday, marking the day in 1990 when East Germany and West Germany reunited More

Analysts: Russia's Syria Strikes Shake Regional Powers

If Moscow bolsters Assad, Saudi Arabia, other Gulf countries may feel obliged to step in More

Video Innovative Nano-Tech Water Filter Prevents Disease

It can absorb contaminants like copper, bacteria, viruses and pesticides, says Askwar Hilonga, who has been successfully trying out his product in Arusha More

This forum has been closed.
Comment Sorting
by: Ria Moore from: IL
March 28, 2013 10:39 AM
I'm glad the European Union is taking the money of those Tax dodgers. It seems the European Union is the only democratic institution that puts the welfare of the small person first.Unlike the UK government, a Parliament for the rich and powerful.

by: david lulasa from: tambua,gimarakwa,hamisi,v
March 25, 2013 6:47 AM
how comes every european nation wont agree with the conditions that will evcentually be put by euro bank ?even germany....

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs