Cypriot President Nicos Anastasiades arrived back in Nicosia Monday to defend a bailout deal with the troika that will see his country’s largest bank restructured and second-largest shut down as part of an overhaul that will cost depositors billions.
“We were a breath away from economic collapse,” said Anastasiades. “Our aim in Brussels was to save the country. We faced some very tough choices.”
The deal agreed between Cyprus and the troika, and which was approved by the Eurogroup, will see Cyprus receiving 10 billion euros in loans, beginning with the first installment in May. However, it will also hit Cyprus’s large banking sector heavily and economists expect the country to experience a severe recession this year.
“I do not want to think about what would have happened if we did not reach an agreement,” he said.
Anastasiades pledged that capital controls – restrictions on the withdrawal and transfer of money – were only temporary and would be gradually relaxed over the next few days once stability has returned to the financial sector.
The president said that pension funds’ bank accounts would be protected and that a criminal investigation would be launched into how Cyprus found itself in such a crisis.
The bailout deal was reached after many hours of talks and following several delays to the start of the Eurogroup on Sunday night.
The deal foresees the country’s second-largest lender, Cyprus Popular Bank (Laiki), going through an immediate resolution process that will see deposits under 100,000 euros, which are guaranteed, being put into a good bank.
Nonperforming loans and uninsured deposits will be placed in a bad bank, which will be liquidated over time. Bondholders and shareholders are also set to lose out.
The good bank will be merged with the country’s largest lender, the Bank of Cyprus. Uninsured deposits at Bank of Cyprus will face a haircut but none of the officials in Brussels was able to say how large the levy would be. It is thought the final figure will be between 30 and 40 percent. The aim is for the healthy bank to achieve a capital ratio of 9 percent.
However, Bank of Cyprus will take over the 9 billion euros of Emergency Liquidity Assistance that the European Central Bank has provided to Laiki.
It is expected that Bank of Cyprus will open on Thursday. Other Cypriot banks, where no haircut will be applied to savings, are due to open Tuesday.
Among the organizations that will suffer losses is the Church of Cyprus. Archbishop Chrysostomos said that the Church had more than 100 million euros in capital, which it will probably lose. Chrysostomos, who has advocated an eventual return to the Cypriot pound, said that local decision-makers should be held accountable for the country’s demise.
“Whoever is responsible for getting us in this state should stand in the dock,” he said. “It is not possible for the people to suffer and there not to be consequences for those responsible.”