Cyprus is sacrificing too much for its European bailout, which is destroying the foundations of the island’s economy, its foreign minister told a French newspaper.
“Europe is pretending to help us but the price to pay is too high: nothing less than the brutal destruction of our economic model,” Ioannis Kasoulides told Thursday’s edition of financial daily Les Echos.
The euro zone agreed the 10 billion euro rescue package on Monday following tough negotiations. It is the first to impose losses on bank depositors, and one that looks set to push the island deeper into an economic slump, shrink the banking sector and cost thousands of jobs.
The banks reopen on Thursday after being closed for almost two weeks, with tight controls imposed on transactions to prevent a run on deposits.
Under the terms of the rescue, the second-largest bank, Cyprus Popular, is being closed, and heavy losses being inflicted on big depositors, many of them Russian.
Asked about why it had been so difficult to reach a deal on the bailout, Kasoulides said: “We were not well enough prepared and there was no solidarity on the part of the Europeans.”
Kasoulides also blamed the European Central Bank, saying that lending to Cyprus Popular, also known as Laiki, should have been stopped before if it was on the verge of bankruptcy.
Without a bailout deal, Cyprus had faced certain banking collapse and risked becoming the first country to be pushed out of the European single currency.
Cyprus has about 68 billion euros in its banks – a vastly outsized financial system compared to its economy and population that attracted deposits from foreigners as an offshore haven.
Deposits above 100,000 euros in the two biggest banks, which are not guaranteed by the state under EU law, will be frozen and used to resolve Laiki’s debts and recapitalise the Bank of Cyprus, the island’s biggest. [Reuters]