Just in time: cyprus agrees bailout deal

Cyprus has agreed a last-minute bailout deal with Eurozone financial ministers, securing €10 billion and keeping the country in the eurozone.

The deal, which was agreed just in time for the Monday deadline set last week by the European Central Bank, will see the island’s worst-hit bank, Laika, “wound down”, reports the BBC, with those holding deposits of more than €100,000 facing big losses.

 All deposits under €100,000 will be “fully guaranteed.”

The Plan B came after the ECB’s plan to levy small and large deposits in bank was rejected by the Cypriot parliament. The new deal, though, will not be put to a government vote at all.

IMF head Christine Lagarde hailed the bailout as a “comprehensive and credible plan” to restore trust in the banking system. But others have given the deal a far frostier reception.

"We are heading for a deep recession, high unemployment,” chairman of Cyprus’ financial committee Nicholas Papadopolous told the BBC. “They wanted to send a message that the Cypriot economy ought to be destroyed, and they've succeeded in a large part - they've destroyed our banking sector.”

Papadopolous added that the deal made “no economic sense”.

The exact amount of the levy will be decided in the coming weeks, while banks in Cyprus remain closed after shutting at the beginning of last week. Many residents have been queuing up at ATMs to take back their money manually, prompting the banks to limit cash withdrawals to €120 per day.

“If I can, I will take my money out, put it in my pocket and fly abroad with it,” one resident told the reporter Nigel Cassidy.

Some experts have argued that it would be better for Cyprus to leave the euro.

Ashley Rigg, of Global Edge, comments: ”The short term pain of an eurozone exit would be immense.  Import prices would dramatically hit the cost of living, particularly food and fuel.  However, like Spain and Greece, the Cypriot economy is disproportionately dependent on tourism which would receive a huge boost from lower prices.

“The majority opinion in Southern Europe is that they’d rather not be in the eurozone but it would be too disruptive and costly to leave.  There are too many unknowns and potential downsides for any politician to do anything other than recommend the status quo.  It might take a year or two for the Cypriot economy to recover but a successful case study would remove some of the uncertainty and speed up a currency solution for the rest of Southern Europe.

“Europe cannot remain with one currency.  Labour costs and productivity are too disparate and whatever the short-term costs of exit, the long term damage of enforced austerity caused by one currency are higher.

“The overseas property industry is driven by climate, convenience and price.   A Cypriot euro exit would be a huge shot in the arm for the industry in Cyprus and would provide a case study for the exit of Portugal, Greece, Spain and potentially even Italy.”