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Cyprus has defended a 10bn-euro bailout deal to save its banks from collapse, amid warnings the island faces deep recession

The government of Cyprus has defended a 10bn-euro bailout deal to save its banks from collapse, amid warnings the island faces deep recession.

Laiki (Popular) Bank, the country’s second largest, will be wound up, but small savers will be protected.

Depositors with more than 100,000 euros ($130,000; £85,000), many of whom are Russian, face big losses.

Cypriot finance minister Michael Sarris said his country had avoided a “disastrous exit from the eurozone”.

But correspondents say Cyprus’ economy will shrink sharply as offshore banking – its main industry – is effectively shut down.

President Nicos Anastasiades – who negotiated the deal with the “troika” of the EU, the European Central Bank and the IMF in Brussels – is to address the nation in the coming hours.

It is not clear when Cypriot banks will reopen, or when temporary restrictions on the movement of capital will be lifted.

German Chancellor Angela Merkel welcomed the agreement, saying “a fair burden distribution” had been achieved.

“We do not want tax payers to save banks, banks must save themselves,” she said.

“This is what will happen in the case of Cyprus.”

But Russian Prime Minister Dmitry Medvedev said losses imposed on big depositors – many of them Russian – amounted to “stealing”.

“What is going on around Cyprus is that they are continuing to plunder loot there,” Mr Medvedev said.

“It is necessary to understand where this story will lead, and what its consequences will be for the international financial system and our interests,” he added.

Suspicion has been growing in Russia that Europe is using the banking crisis to target Russian money in Cyprus, the BBC’s Steve Rosenberg in Moscow says.

Nonetheless, President Vladimir Putin has told Russian officials to restructure a 2.5bn-euro loan extended to Cyprus in 2011 in order to support the restructuring effort.

The European Central Bank had set a deadline of Monday for the deal, which came a week after the Cypriot parliament rejected a proposed bank levy on small and large deposits.

On Friday the new bank restructuring plan was passed by Cypriot MPs. No further vote is needed as there is no levy on deposits under 100,000 euros, which are insured under EU deposit guarantee rules.

However, the Memorandum of Understanding between Cyprus and the EU – the formal agreement that triggers eurozone bailouts – will probably require the Cypriot parliament’s approval, according to the Open Europe think tank.

A “no” vote at that stage could still put Cyprus’s eurozone membership at risk.

Read full story on BBC News

Category: World News |

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Last updated December 2, 2016 at 1:59 PM
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