Cypriot Foreign Minister Ioannis Kasoulides said the 10 billion euros ($13 billion) bailout being put up by international lenders at a big cost to the government and Cypriot society, including the confiscation of up to 80 percent or more of bank accounts over 100,000 euros ($130,000) was designed to punish the country and a “warning” on how to deal with failed banks.
Cyprus “was allowed to serve as an experiment, answering the biggest question — what to do about banks too big to fail?” Kasoulides said in a speech at the Brookings Institution in Washington.
“The opportunity was offered for Cyprus to give the warning and the example for the rest,” he said. “Unfortunately, it didn’t permit us to re-adjust all the wrongdoings of our economy, let’s say within a three-year period, instead of this brutal and overnight collapse of our banking system.”
European governments and the International Monetary Fund agreed in March to put up the bailout as long as Cyprus responded with 13 billion euros ($17 billion) in other measures, including austerity and bank account seizures, and close its second-biggest bank.
Cyprus Central Bank Governor Panicos Demetriades said that the Cypriot economy will shrink 8.7 percent this year, as forecast by the European Commission but that he expects it will eventually recovery. Cyprus was the fifth Eurozone country to need financial assistance with Greece having the biggest economic crisis to date.
Kasoulides said the nation’s private sector will serve as an engine for growth going forward, and that Cyprus will end with a “much better and healthier” banking and financial system. The crisis was caused by the country’s state banks overexposure to Greek bonds that were devalued 74 percent and by bad loans to Greek businesses that went belly-up during that country’s financial woes.