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Cyprus and Top Europe Officials Agree on Outlines of a Bailout Cyprus and Top Europe Officials Agree on Plan to Rescue Banks
(35 minutes later)
NICOSIA, Cyprus — Struggling into the early morning hours to avoid a collapse of Cyprus’s banking system, European Union leaders early Monday agreed on the outlines of a bailout package intended to keep Cyprus in the euro zone and rebuild its devastated economy. BRUSSELS — Struggling into the early-morning hours to avoid a collapse of Cyprus’s banking system, European Union leaders on Monday agreed on a bailout package intended to keep Cyprus in the euro zone and rebuild its devastated economy.
The emerging deal, struck after hours of meetings in Brussels, still needs to be approved by the 17 finance ministers from countries using the euro. It would drastically prune the size of the country’s banking sector, whose size, largely built on the deposits of wealthy Russians, dwarfs the size of the tiny island nation’s economy. The deal, struck after hours of meetings here, was approved by the finance ministers from the euro zone, the 17 countries that use the common currency. It would drastically prune the size of Cyprus’s oversize banking sector, bloated by billions of dollar from Russia and elsewhere in the former Soviet Union.
The deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders.The deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders.
The deal came on a day of heightened anxiety in Cyprus, where major banks further restricted how much money people could withdraw at cash machines. “We have a deal,” President Nicos Anastasiades was quoted as saying by Greek media. “It is in the interests of the Cypriot people and the European Union.”
With banks shut for more than a week, the withdrawal limit from was lowered to 100 euros, or $130, down from 260 euros. At the beginning of the crisis last week, when banks were first closed, the limit was 400. The head of the finance ministers, Jeroen Dijsselbloem of the Netherlands, said the agreement could “be implemented without delay” without a new vote by the Cypriot Parliament, which had rejected a deal last week, because legislators had already passed legislation Friday that set the framework for the new action. “This has indeed been an arduous week for Cyprus,” he said.
Cash has become king here. Retailers, gas stations and supermarkets, gripped by uncertainty over whether Cyprus will really secure a 10 billion-euro financial lifeline to keep the banking system from collapse, are increasingly refusing to take credit cards and checks.
“It’s been cash-only here for three days,” said Ali Wissom, the manager at Il Forno di Jenny’s restaurant off the main square in Nicosia. “The banks have closed, we don’t really know if they will re-open, and all of our suppliers are demanding cash — even the beer company.”
At the Centrum Hotel, Georgia Xenophontes, 23, an employee in the front office, said she drained her bank account at a cash machine last week — just in time to avoid being hit with the latest withdrawal limit.
“This is affecting everything in our lives,” she said. “Even though you don’t want to count on money, you need it. But we don’t have stability.”
Cyprus faces a deadline of Monday night to avoid a banking collapse, as the European Central Bank threatened to shut off financing for banks without a rapid accord on the bailout.
In Brussels, the day was filled with confusion and rancor. Reports filtered out of heated confrontations between the Cypriot president, Nicos Anastasiades, and European Union negotiators, and especially with the International Monetary Fund, which Mr. Anastasiades has accused of trying to push Cyprus up against a wall.
As proposed, the deal would drastically reduce the size of Cyprus’s banking sector, which is eight times bigger than the island’s economic output. This breezy financial haven has fought bitterly to keep the banking sector intact as a way of sustaining its lifeblood and continuing to draw international investors, including wealthy Russians and thousands of businesses with hefty accounts here.
Last summer, Cyprus’s banks took steep losses on their large holdings of Greek bonds when that nation was given its own bailout and bondholders had to take losses. Coupled with a decline in real estate values, the banking troubles forced Cypriot leaders to formally ask for a bailout.
Under the proposed deal, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.Under the proposed deal, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.
Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.
The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank.The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank.
Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely, according to European Union officials who briefed reporters on the deal. Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax.
It was not clear last night whether the plan will need the approval of Cyprus’s Parliament, which rejected a previous deal to bail out the banks. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely, according to European Union officials who briefed reporters on the deal.
The terms came together after a day of brinksmanship and strife. These provisions, if put into effect, should help reverse what, in recent days, has been Cyprus’s steady retreat into a surreal pre-modern economy dominated by cash.
Pressed in Brussels to accept additional burdens on nation’s banks, Mr. Anastasiades told officials including Christine Lagarde, head of the monetary fund, that accepting harsh terms might force him to step down. A message posted to his Facebook page suggested a stormy meeting. With major banks in Cyprus shut for more than week, a trip to the cash machine has become a daily ritual for anyone in Cyprus in need of money. The initial limit on withdrawals was 400 euros. It then fell to 260. As of Sunday night, it slipped to a meager 100 euros.
Wolfgang Schäuble, the German finance minister, called for a rapid resolution. “But that, of course, depends on the people in Cyprus having a somewhat realistic view of the situation,” he said. Retailers, gas stations and supermarkets, gripped by uncertainty over whether Cyprus will really secure a 10 billion-euro financial lifeline to keep the banking system from collapse, are increasingly refusing to take credit cards and checks.
Lenders are demanding that Cyprus raise 5.8 billion euros before it can get the bailout. “It’s been cash-only here for three days,” said Ali Wissom, the manager at Il Forno di Jenny’s restaurant off Cyprus’s main square in Nicosia. “The banks have closed, we don’t really know if they will reopen, and all of our suppliers are demanding cash — even the beer company.”
As the negotiations lasted into the night, people cursed being in the dark about their fate. At the Centrum Hotel, Georgia Xenophontes, 23, an employee in the front office, said she drained her bank account at a cash machine last week — just in time to avoid being hit with the latest withdrawal limit.
“They have confused us so much over the past week, we don’t have any idea what is going on,” said Rami Suleiman, a successful Cyprus businessman who owns six shops, two hotels and a restaurant. “This is affecting everything in our lives,” she said. “Even though you don’t want to count on money, you need it. But we don’t have stability.”
Back in his office after a trip to a cash machine that resulted in only 100 euros and not the 260 he sought, Mr. Suleiman settled at his desk, piled with receipts from his previous trips to get cash, and began combing TV channels to find out what had happened at an emergency meeting in Brussels between international lenders and leaders from Cyprus. Without a deal, Cyprus had faced a deadline of Monday night to avoid a banking collapse, as the European Central Bank threatened to shut off financing for banks without a rapid accord on the bailout.
In Brussels, the day was filled with confusion and rancor. Reports filtered out of heated confrontations between Mr. Anastasiades and European Union negotiators, and especially with the International Monetary Fund, which Mr. Anastasiades has accused of trying to push Cyprus up against a wall.
Mr. Anastasiades told officials including Christine Lagarde, head of the monetary fund, that accepting harsh terms might force him to step down. A message posted to his Facebook page suggested a stormy meeting.
A key issue has been the enormous size of Cyprus’s banking sector, which is eight times bigger than the economic output of this island, which has only 860,000 people.
Germany and other countries have criticized the banks as far too big and too indulgent toward money tainted by crime. Cyprus, though, has fought bitterly to keep the sector intact as a way of sustaining its lifeblood and continuing to draw international investors, including wealthy Russians and thousands of businesses with hefty accounts.
Last summer, Cyprus’s banks took steep losses on their large holdings of Greek bonds when that nation was given its own bailout and bondholders had to take losses. Coupled with a decline in real estate values, the banking troubles forced Cypriot leaders to formally ask for a bailout.
As the negotiations lasted into the night, people in Cyprus cursed being in the dark about their fate.
“They have confused us so much over the past week, we don’t have any idea what is going on,” said Rami Suleiman, a businessman who owns six shops, two hotels and a restaurant.
Back in his office after a trip to a cash machine that resulted in only 100 euros and not the 260 he had sought, Mr. Suleiman settled at his desk, piled with receipts from his previous trips to get cash, and began combing TV channels to find out what had happened at an emergency meeting in Brussels between international lenders and leaders from Cyprus.
“Nothing. Nothing. Nothing. There is no news at all,” he said, lamenting the uncertainty that has pushed him and others here into a state of quiet despair about the future of their country.“Nothing. Nothing. Nothing. There is no news at all,” he said, lamenting the uncertainty that has pushed him and others here into a state of quiet despair about the future of their country.
While Mr. Anastasiades, who took office less than a month ago, has faced mounting criticism from many Cypriots for his handling of the crisis, he was cheered like a soccer star before a big game by a dwindling band of die-hard fans Sunday. “Go Nikos, Go!” wrote Danae Karayianni on the Facebook page of the president’s pre-election campaign headquarters. “Don’t back down president. We are with you and fully supporting you,” wrote another supporter. While Mr. Anastasiades, who took office less than a month ago, has faced mounting criticism from many Cypriots for his handling of the crisis, he was cheered like a soccer star before a big game by a dwindling band of die-hard fans Sunday.
“Go Nikos, Go!” wrote Danae Karayianni on the Facebook page of the president’s re-election campaign headquarters. “Don’t back down president. We are with you and fully supporting you,” wrote another supporter.
But Bill Vasilias, the owner of a kebab restaurant in Nicosia’s old town, fumed that Cyprus’s leaders had again gone cap in hand to Brussels less than a week after the Cypriot Parliament emphatically rejected a bailout deal sealed during overnight talks on March 16. He said he expected another long night in Brussels that would bring only more trouble for Cyprus, no matter what is or is not decided.But Bill Vasilias, the owner of a kebab restaurant in Nicosia’s old town, fumed that Cyprus’s leaders had again gone cap in hand to Brussels less than a week after the Cypriot Parliament emphatically rejected a bailout deal sealed during overnight talks on March 16. He said he expected another long night in Brussels that would bring only more trouble for Cyprus, no matter what is or is not decided.
“In one night, Cyprus will be finished,” he said, complaining that his business had suffered badly. “Nobody has money. We have lost everything.”“In one night, Cyprus will be finished,” he said, complaining that his business had suffered badly. “Nobody has money. We have lost everything.”
The culprits, he added, echoing a view widely shared across the country, were Germany and its chancellor, Angela Merkel. “There are 27 countries in the European Union: 26 lose and only one wins.”The culprits, he added, echoing a view widely shared across the country, were Germany and its chancellor, Angela Merkel. “There are 27 countries in the European Union: 26 lose and only one wins.”
Mr. Suleiman, the hotel and restaurant owner, said his own businesses had not taken a hit yet, but he was finding it harder and harder to keep his operations running. He wishes Cyprus would just dump the euro and go back to its old currency, the pound, as that would at least allow it to make its own decisions and stop having to haggle in Brussels with 26 other countries before decisions are taken.Mr. Suleiman, the hotel and restaurant owner, said his own businesses had not taken a hit yet, but he was finding it harder and harder to keep his operations running. He wishes Cyprus would just dump the euro and go back to its old currency, the pound, as that would at least allow it to make its own decisions and stop having to haggle in Brussels with 26 other countries before decisions are taken.
“We can’t take it anymore. Just give us an answer: Are we in or are we out? We have to know what is happening.”“We can’t take it anymore. Just give us an answer: Are we in or are we out? We have to know what is happening.”

James Kanter reported from Brussels, and Liz Alderman and Andrew Higgins from Nicosia, Cyprus.