Banks reopen after ‘painful’ deal secures Cyprus’s £8.5bn bailout

All banks except the Bank of Cyprus and Laiki were due to reopen.

President Nicos Anastasiades did not specify what limitations would be imposed on transactions. He said it was a “very temporary measure, which will gradually be relaxed”.

The country’s banks have been closed while politicians set up a plan to secure funding for an international bailout, after politicians rejected an initial scheme that would have seized up to 10 per cent of people’s accounts. A deal securing the bailout was reached yesterday.

The last-minute solution to imminent financial meltdown came with an agreement for Cyprus to take up to almost half of the bank savings of the wealthiest people.

In return it secured a 10 billion euro (£8.5bn) bailout.

The deal, described by the country’s politicians as “painful”, was agreed with euro finance ministers in Brussels just in time. The European Central Bank had threatened to cut off crucial emergency assistance to Cyprus’s embattled banks if no agreement was reached.

Without that funding, Cyprus’s banks would have collapsed, dragging the country’s economy down with them and threatening its membership of the 17-strong eurozone all of which would have sent the EU’s markets spinning.

“It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone,” finance minister Michalis Sarris said.

Earlier Parliament president Yiannakis Omirou said: “This decision is painful for the Cypriot people. This decision was a defeat of solidarity, of social cohesion, which are fundamental freedoms, fundamental principles of the European Union.

“So as soon as possible we have to prepare our economy to go out from the mechanism and the troika,” he said, referring to the bailout agreement and the three-member delegation from the European Commission, International Monetary Fund and ECB who oversee implementation of bailout measures.

But Russia’s prime minister Dmitry Medvedev slammed the deal as tantamount to theft.

Russian citizens hold as much 
as 20 billion euros in Cypriot banks.

The banks have been closed for more than a week while politicians wrangled on how to raise 5.8 billion euros to qualify for the rescue. An alternative was needed after MPs defeated the initial plan which would have seized up to 10 per cent of funds in people’s accounts in all banks.

Under the new plan, the bulk of the funds will be raised by forcing losses on wealthy savers in two of the country’s banks, with the remainder coming from tax increases and privatisations.

Laiki, the country’s second-largest bank, will be restructured, with all bond-holders and people with more than 100,000 euros (£85,000) in their accounts facing significant losses. Some estimates say up to 40 per cent will be levied. The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation’s biggest lender, Bank of Cyprus.

Deposits at Bank of Cyprus above the 100,000 euro insured level will be frozen until it becomes clear to what extent they will also be forced to take losses. The money from those deposits will eventually be converted into bank shares.

The plan does not need extra approval from Cyprus’s parliament because the losses are part of a restructuring of the island’s banks and not a tax.