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| Europe Officials Agree to a Deal Rescuing Cyprus | Europe Officials Agree to a Deal Rescuing Cyprus |
| (about 1 hour later) | |
| 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. | 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 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 dollars from Russia and elsewhere in the former Soviet Union. | 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 dollars 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. |
| “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.” | “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.” |
| 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. Lawmakers on Friday passed legislation that set the framework for the new action, he said. | |
| “This has indeed been an arduous week for Cyprus,” he said. | |
| He did not have exact timing for when Cyprus’s banks, which have been closed for more than a week, would reopen. Cyprus would receive the first payment of the bailout package worth 10 billion euros, or $13 billion, in early May. | |
| Under the agreement, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses. | Under the agreement, 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. That short-term financing, which the E.C.B. had threatened to cut off on Monday, is expected to continue. | |
| 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. | |
| Mr. Dijsselbloem said he was “convinced this is a much better deal” because under the revised agreement, the heaviest losses “will be concentrated where the problems are, in the large banks.” | |
| These provisions should help reverse what, in recent days, has been Cyprus’s steady retreat into a surreal pre-modern economy dominated by cash. | |
| Retailers, gas stations and supermarkets, gripped by uncertainty over whether Cyprus would really secure a 10 billion-euro financial lifeline, have increasingly refused to take credit cards and checks. | Retailers, gas stations and supermarkets, gripped by uncertainty over whether Cyprus would really secure a 10 billion-euro financial lifeline, have increasingly refused 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 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.” | “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.” |
| With major banks in Cyprus shut for more than week, a trip to the cash machine became a daily ritual for anyone 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. | |
| 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. | 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.” | “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.” |
| 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. | 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. | |
| By early morning, the tone has softened, with Ms. Lagarde telling reporters that the experience of reaching a deal had been “laborious” but yielded “a good result.” She said she would recommend to the fund’s board that it make a contribution to the bailout package, but said that sum still needed to be determined. | |
| “We believe that this will form a lasting, durable and fully financed solution,” she said. | |
| A key issue has been the enormous size of Cyprus’s banking sector, which is eight times bigger than the economic output of Cyprus, which has only 860,000 people. | A key issue has been the enormous size of Cyprus’s banking sector, which is eight times bigger than the economic output of Cyprus, 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, and the deal represented a triumph for them. Cyprus, though, 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. | 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. | 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. | “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 a in Brussels. | |
| “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. | 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. | “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. |
| Having secured a deal, Mr. Anastasiades and his country face an arduous future, even if the immediate threat has been lifted. | |
| “The near future will be very difficult for the country and its people,” Olli Rehn, the European Union commissioner for economic and monetary affairs, told the news conference. But the deal was “necessary for the Cypriot people to rebuild their economy on a new basis.” | |
James Kanter reported from Brussels, and Liz Alderman and Andrew Higgins from Nicosia, Cyprus. | James Kanter reported from Brussels, and Liz Alderman and Andrew Higgins from Nicosia, Cyprus. |
| This article has been revised to reflect the following correction: | |
| Correction: March 25, 2013 | |
An earlier version of this article referred imprecisely to the population of Cyprus. It should have said that the country, and not the island itself, has only 860,000 people. |