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10 December 2012

Spiegel: De facto loss of sovereignty - Cyprus makes big concessions for bailout

Cyprus wants help from the European Union's bailout fund. But the price for the billions in emergency aid money is high: the country will effectively lose its sovereignty.

It is already clear that in return for billions of euros for the debt-ridden country from the European bailout fund, the "troika", made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), will essentialy take control of the Mediterranean island.

The Cypriot government and representatives of the troika negotiated for almost five months over the terms of a bailout package, worth at least €17.5 billion ($22.8 billion). The negotiations produced the draft version of a 30-page Memorandum of Understanding (MoU), in which the troika dictates to Cyprus what steps it will have to take in the coming years, down to the smallest detail.

The amount of the aid package corresponds almost to the country's entire economic output in a year. According to the troika's plan, by 2016 Cyprus's national budget will be cleaned up enough that the country can hopefully make do without new debt.

Cypriot banks are also expected to make a contribution. Crisis-ridden institutions will no longer be supported solely by injections of cash from the European bailout fund. This time, the banks' creditors are also expected to pay up. "With the goal of minimising the cost to taxpayers, bank shareholders and junior debt-holders will take losses before state aid measures are granted", the MoU draft reads. This means that creditors of Cypriot banks won't just be able to withdraw their money. Instead, their claims will be converted into bank shares.

Full article

© Spiegel Online

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