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
X
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

In China, Mixed Signals on Ebola Controls

How authorities are monitoring at-risk individuals remains unclear, including whether there are quarantines for Chinese health workers returning from West Africa More

Video Women Voters Anxious Ahead of US Elections

Analysts say if women are focused on national security, it could be bad news for Democrats More

Solar's Future Looks Brighter

New technology and dropping prices are contributing to a surge in solar power More

This forum has been closed.
Comment Sorting
Comments
     
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.
Women Voters Anxious Ahead of US Electionsi
X
October 31, 2014 4:10 AM
Public opinion polls show American voters are deeply dissatisfied with their government and anxious about threats from abroad. This is especially true for a key voting group both Republicans and Democrats are trying hard to win over: women. Analysts say if women are focused on national security, it could be bad news for Democrats, with majority control of the Senate at stake. VOA’s Cindy Saine looks at the crucial role women voters will play in deciding the elections.
Video

Video Women Voters Anxious Ahead of US Elections

Public opinion polls show American voters are deeply dissatisfied with their government and anxious about threats from abroad. This is especially true for a key voting group both Republicans and Democrats are trying hard to win over: women. Analysts say if women are focused on national security, it could be bad news for Democrats, with majority control of the Senate at stake. VOA’s Cindy Saine looks at the crucial role women voters will play in deciding the elections.
Video

Video Victorious Secularists Face Challenge to Form Government in Tunisia

Official results from Tunisia show the Islamist Ennahda party has failed to win the second free election since the so-called "Arab Spring" uprising in 2011. Ennahda, which handed power to a government of technocrats pending the elections, lost out to the secular party Nidaa Tounes. Henry Ridgwell reports from London that the relatively peaceful poll offers some hope in a volatile region.
Video

Video Africa Tells its Story Through Fashion

In Africa, Fashion Week is a riot of colors, shapes, patterns and fabrics - against the backdrop of its ongoing struggle between nature and its fast-growing urban edge. How do these ideas translate into needle and thread? VOA’s Anita Powell visited this year’s Mercedes Benz Fashion Week Africa in Johannesburg to find out.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.

All About America

AppleAndroid