16 March 2013

FT: Cypriot bank deposits tapped as part of €10 billion eurozone bailout

International lenders agreed to a €10 billion bailout of Cyprus after 10 hours of fraught negotiations, which included convincing Nicosia to seize €5.8 billion from Cypriot bank deposits to help pay for the rescue, a first for any eurozone bailout.

The cash from Cypriot account holders will come in the form of a one-time 9.9 per cent levy on all deposits over €100,000 that will be slashed from their savings before banks reopen Tuesday, a day after a Cypriot holiday. An additional 6.75 per cent levy will be imposed on deposits below that level.

Cypriot finance minister Michalis Sarris said his government had already moved to ensure deposit holders could not make large withdrawals electronically before Tuesday’s open; Jörg Asmussen, a member of the European Central Bank executive board, said a portion of deposits equivalent to the levies would likely be frozen immediately. “I am not happy with this outcome in the sense that I wish I was not the minister that had to do this”, Mr Sarris said. “But I feel that the responsible course of action of a minister that takes an oath to protect the general welfare of the people and the stability of the system did not leave us with any other options.”

Mr Asmussen justified the measure by saying it broadened the number of people who will shoulder the burden of the bailout. Without the measures, he said, much of it would fall on Cypriot taxpayers; by going after all large deposit holders – many of whom are Russian or British – outsiders would help fund the rescue.

Cypriots hit by the levy will be granted shares in their banks of equivalent value to their losses, something Mr Sarris said he believed would give depositors an incentive to stay put.

Christine Lagarde, the IMF managing director who participated in the marathon talks, said she would now recommend to the fund’s board that it contribute to the programme, though she said it was too early to say whether it would chip in one-third of the cost as it has in Ireland, Portugal and the first Greek bailout.

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