Cyprus-Troika Strike Last Minute Deal, No New Parliament Vote Required

Cyprus leaders in the early hours of Monday morning clinched a last-minute deal with international lenders for a 10 billion euro ($13 billion) bailout, reported Reuters, effectively shutting down the island’s second biggest bank in the process, while bank deposits above 100,000 euros will also be frozen and be used to resolve debts.

Cyprus leaders in the early hours of Monday morning clinched a last-minute deal with international lenders for a 10 billion euro ($13 billion) bailout, reported Reuters, effectively shutting down the island’s second biggest bank in the process, while bank deposits above 100,000 euros will also be frozen and be used to resolve debts.

The agreement, which concluded ten hours of tense negotiations where Cypriot President Nicos Anastasiades had threatened to resign at one point, means that Cyprus will now avoid bankruptcy and remain in the Euro area, though diplomats failed to elaborate on how much large deposit holders would now lose.

Last week, the Cyprus parliament had voted 36-0 against a previously agreed deal to impose a 6.75 percent levy for deposits of 20,000-100,000 euros and another 9.9 percent charge for those above 100,000 euros.

Cypriot bank accounts with less than 100,000 euros will now avoid any charges, though large depositors are now likely to face a far higher burden than previously mentioned. AFP suggested that the large depositors could lose as much as 40 percent.

Meanwhile, Laiki Bank, or the Cyprus Popular Bank, will also be shut down, while deposits below 100,000 euros in Laiki will be transferred to the country’s largest bank, the Bank of Cyprus.

Related: Cyprus MPs Reject EU-IMF Bailout Deal, With Zero Votes In Favour

Related: Cyprus to Impose Controversial Bank Levy on Savers

Related: Greece Offers Support To Cyprus After Bailout Rejection

According to the head of the finance ministers, Jeroen Dijsselbloem of the Netherlands, the agreement can “be implemented without delay”, as a new vote by the Cypriot Parliament is not required. Cypriot legislators had already passed legislation last Friday that set the framework for the new action.

Anastasiades, who reportedly clashed several times with IMF Managing Director Christine Lagarde, also said the deal was in the “interests of the Cypriot people and the European Union,” and highlighted that his nation could have been forced to abandon the euro currency if not for the agreement.

Eventually Cyprus also managed to resist pressure to unwind the Bank of Cyprus during negotiations, diplomats said.

Related: Cyprus Bailout: The Death Of National Sovereignty?

Related: Cyprus: More Worrisome Than Greece?

Related: Europe Trapped In Economic War Of Attrition: Mohamed El-Erian

Lagarde, later made the following statement after discussions at the Eurogroup meeting:

“The agreement reached today on Cyprus provides a comprehensive and credible plan to deal with the current economic challenges in the country. The plan focuses on dealing with the two problem banks and fully protecting insured deposits in all banks. It addresses upfront the core problem of the banking system through a clear strategy that ensures debt sustainability and does not excessively burden the Cypriot taxpayer.

[quote]“This agreement provides the basis for restoring trust in the banking system, which is key to supporting growth. We believe the plan provides a durable and fully financed solution to the underlying problems facing Cyprus and places it on a sustainable path to recovery. [/quote]

“The staff teams of the IMF and the European partners currently in Cyprus will now work to complete the technical details. Based on this and final agreement of the mission in Cyprus, I expect to make a recommendation regarding potential financial support from the IMF to the Executive Board in coming weeks.”