Run on banks feared in Cyprus under bailout agreement
NICOSIA, Cyprus — The eurozone agreed on Saturday to hand Cyprus a bailout worth $13 billion, but demanded depositors in the country's banks forfeit some money to stave off bankruptcy — sending shockwaves through one of the Europe's tiniest economies and causing nervous depositors to rush to ATMs to drain their accounts.
The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro- zone for financial help during the region's debt crisis. But the deal reached with euro partners and the International Monetary Fund marked a radical departure from previous international aid packages.
Cyprus' president defended the decision to force bank depositors to share the burden of the bailout, saying it was done to save his country from financial ruin.
President Nicos Anastasiades said Cyprus had little option but to accept the levy, an unprecedented step in the eurozone crisis. Without it, he said, Cyprus' banking system would have collapsed on Tuesday.
Anastasiades said that's when the European Central Bank would have stopped providing emergency funding to Cyprus' troubled banks. Such a collapse would have driven the country to bankruptcy and possibly out of the eurozone, he said.
The president said the deposit levy rescues banks, keeps the country's debt load manageable, and avoids the risk of deeper pay cuts and tax hikes.
“We're not aiming to gloss over the situation,” he said in his first public statement after the EU-IMF meeting in Brussels agreed on the bailout. “The solution taken may be painful, but it was the only one” worth taking.
News of the levy stunned the public because Anastasiades and his top ministers had vehemently rejected suggestions of going after deposits to save Cyprus' banks that lost billions on bad Greek debt.
Another key concern was that the bailout would buckle investor confidence in Cyprus and other weaker eurozone economies.
Trying to head off a full-blown bank run when banks reopen on Tuesday after the long holiday weekend, Bank of Cyprus Group chief Andreas Artemis called for “calm and a level-headed assessment” of the situation.
“Developments are painful and startling. That's why the public's concern is completely understandable and justified,” he said.
Germany's Finance Minister Wolfgang Schaeuble called the levy part of the “fair” distribution of the bailout's burden. “The Cypriot banking sector will be significantly reduced to a sustainable level and business model,” he said.