11 June 2013

Reuters: Cyprus president criticises bailout terms

Cypriot President Nicos Anastasiades has launched scathing criticism over the terms of an international bailout which forced massive losses on bank deposits, saying the support lenders displayed to Greece was absent in the case of Cyprus.

In a letter to lenders, collectively known as the troika, Anastasiades expressed concern onerous conditions for aid were a stranglehold over an economy facing deep recession, with legacy debt from the wound-down bank adding to the vulnerability of the banking system.

To prevent financial collapse and be eligible for aid, Cyprus is closing down Popular Bank, also known as Laiki, and converting sizeable deposits in Bank of Cyprus into equity to help recapitalise that bank. The process, known as a 'bail-in', was a first in the history of the eurozone debt crisis. Thousands of depositors lost their savings, and subsequent capital controls were imposed to prevent a drain on remaining deposits. Those controls are largely still in place. "It is my humble submission that the bail-in was implemented without careful preparation", Anastasiades says in the letter.

Cypriot finance minister Haris Georgiades, who Anastasiades said had already alerted lenders to potential pitfalls without receiving a response, declined to comment on the matter. As part of the aid package, Laiki and Bank of Cyprus were forced to sell their Greek branches, while deposits the banks had in that country were exempt from the bail-in, to avoid contagion to Greece.

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