Cyprus secured a €10 Billion refinancing deal from the EU. And while the new plan protects small depositors, people with larger savings in the island’s second-largest bank are getting thrown under the bus.
Various news agencies are quoting anonymous European Union negotiators as saying the Laiki Bank and its depositors will bear the brunt of the bailout: Accounts with more than €100,000 (A$125,000) could be subjected to a levy of up to 40 percent. But accounts containing less than that will be fully guaranteed.
Laiki Bank will also be “restructured”, which likely means it will be split into “good” and “bad” banks, and the good assets will be merged into the Bank of Cyprus.
In exchange, the EU will send €10 Billion down to Cyprus to rescue its cash-strapped government and recapitalize the remaining banks.
Cyprus was actually doing well a few years ago, but its banks made a series of bad loans to Greece.
CORRECTION: An earlier version of this story stated that the Cypriot Parliament would have to approve the deal. It turns out that is not the case: Last week's EU bailout package was structured as a tax for all savers in Cyprus, so it required lawmakers' approval, which they did not give. But today's breakthrough rewrote the penalty so that it covers a narrower slice of savers at Laiki Bank and Bank of Cyprus, therefore, not a tax. Eliminating the parliament's approval was a big condition imposed by the International Monetary Fund.