Cypriot savers to help fund e10bn bailout

Annika Breidthardt, Robin Emmott and Michele Kambas Brussels

The euro zone struck a deal on Saturday to hand Cyprus a bailout worth e10 billion (R121bn), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider run on savings.

The island is the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.

In a radical departure from previous aid packages – and one that caused incredulity and anger across the country – euro zone finance ministers forced Cyprus’s savers to pay up to 10 percent of their deposits to raise almost e6bn.

Almost half of its depositors are believed to be non-resident Russians, but most of those queuing on Saturday at ATMs appeared to be Cypriots.

“I wish I was not the minister to do this,” Cypriot Finance Minister Michael Sarris said after 10 hours of late-night talks in Brussels where the package was hammered out.

“Much more money could have been lost in a bankruptcy of the banking system or indeed of the country,” he said, adding that he hoped a levy and bailout would mark a new start for Cyprus.

Without a rescue, Cyprus would default and undermine the investor confidence in the euro zone that has been built up by the European Central Bank’s promise last year to do whatever it took to shore up the currency bloc.

The bailout was smaller than first expected and is mainly needed to recapitalise banks that were hit by Greece’s sovereign debt restructuring.

The deposit levy – set at 9.9 percent on bank deposits exceeding e100 000 and at 6.7 percent on anything below that – will take place tomorrow after a bank holiday today.

To guard against capital flight, Cyprus took steps to prevent electronic money transfers over the weekend. In the town of Larnaca, where irate depositors queued to get money from ATMs, co-op credit societies that are normally open on Saturdays stayed closed.

“I’m extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans,” British-Cypriot Andy Georgiou said.

“This is theft, pure and simple,” a pensioner said.

The levy breaks a euro zone taboo by hitting bank depositors with losses.

It prompted Spain, considered the next most likely state to seek a sovereign rescue, to deny savers in other countries risked being similarly penalised.

The bailout was specific to Cyprus and its bloated banking sector and “could not be extrapolated to any other country”, an economy ministry source said.

In Brussels, Dutch Finance Minister Jeroen Dijsselbloem said it would not otherwise have been possible to save Cyprus’s financial sector, which, compared with national economic output, is more than twice as big as the EU average.

“As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders,” said Dijsselbloem, who chaired the meeting. – Reuters