Cyprus Receives First EU-IMF Aid Tranche
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Cyprus on Monday received its first tranche of a 10 billion euro bailout package from international creditors agreed earlier this year, after the near-collapse of the country’s banking sector.
Cyprus received 2 billion euros on Monday and will get as much as 1 billion euros more in June as the Mediterranean island’s aid package was activated, the European Stability Mechanism, the euro area’s permanent backstop fund, said in a statement.
The release came as finance ministers from the 17 euro countries also approved two fresh aid payments for Greece.
Cyprus on Monday received its first tranche of a 10 billion euro bailout package from international creditors agreed earlier this year, after the near-collapse of the country’s banking sector.
Cyprus received 2 billion euros on Monday and will get as much as 1 billion euros more in June as the Mediterranean island’s aid package was activated, the European Stability Mechanism, the euro area’s permanent backstop fund, said in a statement.
The release came as finance ministers from the 17 euro countries also approved two fresh aid payments for Greece.
Cyprus this year became the fourth eurozone country that needed to be bailed out by international lenders, and unlike any other aid deal it controversially forced depositors to foot the cost of recapitalising banks exposed bad debts in neighbouring Greece.
In exchange for the emergency loans, Cyprus in March agreed to unprecedented “haircuts” on deposits – effectively confiscating up to 60 percent of any bank depositor’s holdings above 100,000 euros held in two of the country’s largest banks, Bank of Cyprus and Laiki Bank. At the same time, Laiki Bank was forced to fold and merge into the Bank of Cyprus.
The move forced the Cypriot government to close all the island’s banks for nearly two weeks in March and impose Draconian capital flight controls when they reopened to prevent a run on accounts.
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Cypriot officials had abandoned an earlier, and even more controversial, plan to tap a percentage of insured deposits under 100,000 euros in the island’s banks. The plan, however, was scrapped after it set off tremors in global financial markets and raised the risk of a run on eurozone banks because of concerns that even insured deposits might not be safe in a crisis.
Last week, Cypriot central bank governor Panicos Demetriades, said that most of the depositors who lost money under the deposit-seizure system were foreigners. “Seventy percent of the value of the deposits concerned overseas residents, leaving Cypriot households and businesses unaffected to a greater extent than was possibly expected,” he said at a news conference.
Related: Cyprus Bailout: The Death Of National Sovereignty?
Related: Cyprus Economy May Contract By 13 Percent This Year: Government
The bailout has also set off geopolitical tensions over recently discovered offshore natural gas reserves in Cypriot waters, which international creditors hope could be tapped in the future to help pay off the country’s debts.
Last week, the EU commissioner for economic and monetary affairs, Olli Rehn, pressed for the four-decade-old division of Cyprus into Greek and Turkish territories to be abolished, saying reunification would give Cyprus a “major boost to economic and social development.”
Related: Cyprus Bailout: Centre Of A Power Struggle Over Natural Gas?
