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

Multimedia Parents of Disaster Ferry Passengers Lash Out at Authorities

Twenty-nine bodies recovered from water but some 270 remain trapped on board More

War Legacy Haunts Vietnam, US Relations

US congressional delegation initiates $84 million Agent Orange cleanup project More

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends 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.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
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.
AppleAndroid