As Cyprus ratchets down its oversized banking sector to get a pending 10 billion euros ($13 billion) bailout from international lenders, the price it’s paying, including confiscating up to 80 percent of uninsured bank deposits over 100,000 euros ($130,000) is unfair, Foreign Minister Ioannis Kasoulides told the French newspaper Les Echos.
Kasoulides said the decision by newly-elected President Nicos Anastasiades would destroy the island’s economy and that the country’s Eurozone partners were too punishing in their demands. “Europe is pretending to help us but the price to pay is too high: nothing less than the brutal destruction of our economic model,” he said.
The bailout from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) has such tough conditions that many analysts believe it will plunge the island into years of recession and perhaps a depression as it shrinks the banking sector and is expected to set off record unemployment.
Under the terms of the rescue, the second-largest bank, Cyprus Popular, is being closed, and heavy losses being inflicted on big depositors, many of them Russian. Asked about why it had been so difficult to reach a deal on the bailout, Kasoulides said: “We were not well enough prepared and there was no solidarity on the part of the Europeans.”
Kasoulides also blamed the ECB, saying that lending to Cyprus Popular, also known as Laiki, should have been stopped before if it was on the verge of bankruptcy. Without a bailout deal, Cyprus had faced certain banking collapse and risked becoming the first country to be pushed out of the European single currency.
Cyprus has about 68 billion euros ($87.19 billion ) in its banks, about four times its Gross Domestic Product (GDP) that was built by offering a low tax rate to foreign investors.
Deposits above 100,000 euros in the two biggest banks, which are not guaranteed by the state under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize the Bank of Cyprus, the island’s biggest.