Greece described a bailout deal between international lenders and Cyprus that will confiscate as much as 30-100 percent of bank accounts over 100,000 euros ($130,000) as “painful” but didn’t object as it faces negotiations with the same lenders who are pushing for more reforms in Greece.
A government spokesman expressed confidence that Cyprus would recover although most analysts said the island country’s residents face years of hardship under the deal brokered by new President Nicos Anastasiades, who had opposed it a month earlier during his campaign.
Speaking several hours after the deal was reached in Brussels, Simos Kedikoglou suggested that Cyprus faced little choice but to accept significant losses for large depositors as part of an effort to overhaul its banking system, much the same way Greece has relented to three years of pay cuts, tax hikes and slashed pensions put on workers, pensioners and the poor.
“The agreement stops the slide towards a Eurozone exit and the chaos that would come with that,” he said. “Cyprus has produced miracles many times. It will do it again,” added Kedikoglou. “It has the ability to make use of its unique position and its wealth-producing resources to return to prosperity and growth soon.”
In his statement, he also warned that other countries should not seek to take advantaged of Cyprus’s economic weakness. The comment comes after the Turkish Foreign Ministry warned of a “new crisis” in the Mediterranean if Cyprus collateralizes gas revenues as part of plans to form a solidarity fund.
The major opposition party Coalition of the Radical Left (SYRIZA) condemned the agreement in Brussels, where it said that Cyprus had succumbed to “blackmail” and “threats.” It criticized the Greek government for failing to show solidarity for Nicosia and accused southern Europe of “shooting itself in the foot” by failing to form a united front against the idea of a depositor bail-in. The leftist party criticized the government for failing to show solidarity for Nicosia and accused Southern Europe of “shooting itself in the foot” by failing to form a united front against the idea of a depositor bail-in.
In his speech to mark Greek Independence Day, President Karolos Papoulias described the agreement between Cyprus and the troika as “intolerable” and “selective” although he supports the tough conditions being put on Greeks.
PASOK Socialist leader Evangelos Venizelos, who is largely responsible for the Cypriot crisis as the engineer of the so-called Private Sector Involvement (PSI) deal that imposed big losses on their banks as well as those in Greece, said that the Eurozone, particularly Germany, had chosen to make an example of Cyprus by “punishing and knocking sense into” the country. He is now a partner in New Democracy Conservative leader Prime Minister Antonis Samaras’ coalition government and has backed harsh austerity measures for Greeks.
The deal foresees the winding down of Cyprus Popular Bank (Laiki) and restructuring of Bank of Cyprus. The resolution of Laiki will see uninsured depositors (those with more than 100,000) lose most or all of their money.
Depositors with more than 100,000 euros in the Bank of Cyprus also face a substantial haircut, expected to be between 30 and 40 percent as they are being forced to pay for a crisis caused when their banks suffered 4.5 billion euros ($6.82 billion) in losses in loans to Greek businesses that went belly-up and their large holdings in Greek bonds that were devalued 74 percent.
The healthy part of Laiki will be merged with Bank of Cyprus, which will also take about 9 billion euros ($13.64 billion) in European Central Bank funding from the defunct lender. Cyprus is set to begin receiving its bailout installments in May.
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