Cyprus’ bailout package was a “warning” and the country was turned into an experiment on how to handle too-big-to-fail banks, said Cypriot Foreign Minister Ioannis Kasoulides.
Cyprus “was allowed to serve as an experiment, answering the biggest question — what to do about banks too big to fail?” Kasoulides said in a speech at the Brookings Institution in Washington.
“The opportunity was offered for Cyprus to give the warning and the example for the rest,” he said. “Unfortunately, it didn’t permit us to re-adjust all the wrongdoings of our economy, let’s say within a three-year period, instead of this brutal and overnight collapse of our banking system.”
European governments and the International Monetary Fund agreed in March to loan Cyprus 10 billion euros ($13 billion) as long as the country liquidated its second-largest bank and forced losses on bank bondholders and deposits of more than 100,000 euros. The country’s parliament rejected an earlier plan that would have also imposed a levy on deposits of less than 100,000 euros.
In the aftermath, the nation’s economy is expected to struggle to recover. Cyprus Central Bank Governor Panicos Demetriades said on Thursday in Nicosia that the Cypriot economy will shrink 8.7 percent this year, as forecast by the European Commission.
The Mediterranean island was the fifth euro-zone country to tap international aid in the region’s sovereign debt crisis.
Kasoulides said the nation’s private sector will serve as an engine for growth going forward, and that Cyprus will end with a “much better and healthier” banking and financial system.