Author: GREEK WORLD MEDIA

The cash-strapped island nation needs a 10 billion euro ($13 billion) bailout to recapitalise its ailing lenders and keep the government afloat. The European Central Bank had threatened to cut crucial emergency assistance to the country’s banks by Tuesday without an agreement.

The finance ministers of the 17-nation eurozone accepted the plan reached in 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors: the International Monetary Fund, the European Commission and the ECB.

Under the plan, Cyprus’ second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros will have to take losses, the diplomats said.

They spoke on condition of anonymity pending the official announcement. It was not immediately clear whether the holders of large deposits in the remaining Cypriot banks would equally be forced to take losses.

The diplomats also did not elaborate on how much large deposit holders would lose. Making them take a hit is expected to net several billion euros, reducing the amount of rescue loans the country needs.

Without a deal by Monday night, the tiny Mediterranean island nation of about 1 million would have faced the prospect of bankruptcy, which could force it to abandon the euro currency and spur turmoil in the eurozone of 300 million people.

To secure a rescue loan package, Nicosia had to find ways to raise 5.8 billion euros so it could qualify for the 10 billion euro bailout package.

The bulk of that money is now being raised by forcing losses on large deposit holders as well as bond holders in Laiki bank, which will be split into a bad bank of toxic assets and a remaining viable core business.

But Cyprus resisted pressure by creditors to also unwind the country’s largest lender, Bank of Cyprus, the diplomat said.

A plan agreed to in marathon negotiations earlier this month called for a one-time levy on all bank depositors in Cypriot banks. But the proposal ignited fierce anger among Cypriots because it also targeted small savers. It failed to win a single vote in the Cypriot Parliament.

Under the new agreement, average savers’ deposits with all Cypriot banks of up to 100,000 euros will be guaranteed by the state in accordance with the EU’s deposit insurance guarantee, the diplomat said.

In an illustration of the depth of the fear of a banking collapse, Cyprus’ central bank on Sunday imposed a daily withdrawal limit of 100 euros ($130) from ATMs of the country’s two largest banks to prevent a bank run by depositors worried about their savings.

Cypriot banks have been closed this past week while officials worked on a rescue plan, and they are not due to reopen until Tuesday.

Cash has been available through ATMs, but long lines formed and many machines have quickly run out of cash.

The international creditors, led by the IMF, were seeking a fundamental restructuring of the outsized financial system, which is worth up to eight times the country’s gross domestic product of about 18 billion euros. They say the country’s business model of attracting foreign investors, among them many Russians, with low taxes and lax financial regulation has backfired and must be upended.

They also insisted that Cyprus couldn’t receive more loans because that would make its debt burden unsustainably high.

After the eurozone’s finance ministers’ approval, the ECB is expected to continue providing liquidity to the Cypriot banks, avoiding an imminent collapse.

Several national parliaments in eurozone countries such as Germany then must also approve the bailout deal, which might take another few weeks

During more than 10 hours of talks with bosses from the ECB, IMF and the EU, President Nicos Anastasiades had fought for the survival of the island’s No. 1 lender, the Bank of Cyprus.

The deal hammered out would see the bank, which carries one third of all holdings, survive.

But this would come at a massive price for investors, which one senior EU source said could be as high as 40 per cent.

Another senior EU source said there would be no levy – a major U-turn from last week’s collapsed deal to clobber all savers on the island.

But Cyprus’s second bank, Laiki, would be wound up as part of the agreement, he added.

Smaller account-holders will be covered by the EU’s deposit guarantee legislation, which runs to the 100,000-euro threshold, while those above that level face a hefty haircut.

The negotiations were aimed at pulling together some seven billion euros, mainly from the Cypriot banking sector, to unlock a 10-billion-euro ($A12.51 billion) loans package from eurozone partners and the International Monetary Fund.

A major sticking point throughout the talks was a European Central Bank demand for the Bank of Cyprus to pay a nine-billion-euro bill due to Frankfurt.

Earlier, hundreds of Cypriot demonstrators have rallied outside EU offices and the presidential palace in Nicosia, calling on the government to defy international pressure to take a “criminal” bailout.

As they awaited the result of last-ditch talks in Brussels, the protesters slammed  Anastasiades and the so-called troika of the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB).

About 500 members of the communist Akel Party gathered outside the offices of the European Commission chanting: “Don’t bow, people of Cyprus, stand up for your rights,” and “Troika prints euros and buys nations”.

“This is the Third World War in an economic form and we will stand up to it with all of our strength,” protester Marina Charalambous said.

Another protester, Anda Dimitriou, said: “Cypriots are proud people, very hardworking people. Europe’s stance is unacceptable and criminal.”

Athina Kariati, said Cyprus had to fight efforts to make it accept conditions including a “haircut” for bank depositors.

“They are going to let people starve in order to save the large capital,” she said. “Right now we have to save our economy completely, refuse to pay the debt and nationalise the banks,” she said.

Party member Andreas, a pensioner who declined to give his surname, said the troika were “not considering the people of Cyprus, but only figures and money”.

“Their main concern is about Cypriot banks and that goes against the basic principle of the EU, guarding people’s wellbeing,” he said.

Akel, which has 19 seats in the 56-member parliament, had refused to sign a bailout agreement on the terms on offer while it was in power before Anastasiades’s election last month.

“Anastasiades is responsible for this,” said Charles Vassiliou, another Akel member.

“He listens to the troika. Akel would have handled the situation very differently. We would never have put Cyprus hostage to the troika. We would have quit the eurozone and gone back to the (Cyprus) pound.”

Some demonstrators were gloomily fatalistic about Cyprus eventually being forced to abandon the European single currency that it adopted in 2008.

“We are bankrupt,” said Starvros Georgiou.

“Sooner or later we will return to the pound with tremendous consequences.”

The other protest at the presidential palace involved around 200 people, mostly bank workers whose jobs and pensions are on the line.

They held a banner saying: “We will not become slaves of the 21st century.”

A female protester who declined to give her name compared the crisis to 1974, the year that Turkish troops occupied the island’s northern third in response to an Athens-engineered coup in Nicosia aimed at union with Greece.

“Everything is pre-planned because the government wants to follow the troika. Everything is sold and betrayed as back in 1974,” she said angrily.

“How can there be a light at the end of the tunnel when a government doesn’t know how to negotiate, only because they want to follow troika. Anastasiades is committed to (German Chancellor Angela) Merkel.”

Negotiations in Brussels among Eurogroup finance ministers on Cyprus were put back by at least two hours on Sunday as talks dragged on between Anastasiades and EU and IMF chiefs