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.
TEXT SIZE - +
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
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

Analysts Warn of Regional Proxy Conflict in Afghanistan

Analysts warn if Kabul’s neighbors do not start to cooperate, competing desires for influence could deteriorate into a bloody proxy war in the country More

Saudi Intelligence Chief Replaced

Bandar bin Sultan came under criticism for supporting al Qaida, prompting King Abdallah to wrest Syria operations away from him in February, handing them to Interior Minister Prince Mohammed bin Nayef More

Poetry Magazine editor Don Share talks what makes a good poem with VOA's David Byrd

What makes a good poem? And is poetry as viable an art form as it once was? To find out, VOA's David Byrd spoke to Don Share, the editor of Poetry Magazine. 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.
Google Buys Drone Companyi
|| 0:00:00
...
 
🔇
X
George Putic
April 15, 2014
In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
Video

Video Ray Bonneville Sings the Blues and More on New CD

Singer/songwriter Ray Bonneville has released a new CD called “Easy Gone” with music that reflects his musical and personal journey from French-speaking Canada to his current home in Austin,Texas. The eclectic artist’s fan base extends from Texas to various parts of North America and Europe. VOA’s Greg Flakus reports from Austin.
Video

Video Millions Labor in Pakistan's Informal Economy

The World Bank says that in Pakistan, roughly 70 percent work in the so-called informal sector, a part of the economy that is unregulated and untaxed. VOA's Sharon Behn reports from Islamabad on how the informal sector impact's the Pakistani economy.
Video

Video Passover Celebrates Liberation from Bondage

Jewish people around the world are celebrating Passover, a commemoration of their liberation from slavery in Egypt more than 3,300 years ago. According to scripture, God helped the Jews, led by Moses, escape bondage in Egypt and cross the Red Sea into the desert. Zlatica Hoke reports that the story of the Jewish Exodus resonates with other people trying to escape slave-like conditions.
Video

Video Police Pursue Hate Crime Charges Against Kansas Shooting Suspect

Prosecutors are sifting through the evidence in the wake of Sunday’s shootings in a suburb of Kansas City, Missouri that left three people dead. A suspect in the shootings taken into custody is a white supremacist. As VOA’s Kane Farabaugh reports, he was well-known to law enforcement agencies and human rights groups alike.
Video

Video In Eastern Ukraine, Pro-unity Activists Emerge from Shadows

Amid the pro-Russian uprisings in eastern Ukraine, there is a large body of activists who support Ukrainian unity and reject Russian intervention. Their activities have remained largely underground, but they are preparing to take on their pro-Moscow opponents, as Henry Ridgwell reports from the eastern city of Donetsk.
Video

Video Basket Maker’s Skills Have World Reach

A prestigious craft show in the U.S. capital offers one-of-a-kind creations by more than 120 artists working in a variety of media. As VOA’s Julie Taboh reports from Washington, one artist lucky enough to be selected says sharing her skills with women overseas is just as significant.
Video

Video UN Report Urges Speedier Action to Avoid Climate Disaster

A new United Nations report says the world must switch from fossil fuels to cleaner energy sources to control the effects of climate change. The Intergovernmental Panel on Climate Change released the report (Sunday) following a meeting of scientists and government representatives in Berlin. The comprehensive review follows two recent IPCC reports that detail the certainty of climate change, its impacts and in this most recent report what to do about it. VOA’s Rosanne Skirble has the details.
AppleAndroid