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EU deal emerging to shutter Cyprus bank

| Sunday, March 24, 2013, 9:00 p.m.

BRUSSELS — Cyprus reached an outline deal with international lenders for a $13 billion bailout that would shut its second-largest bank and inflict heavy losses on uninsured depositors, a European Union spokesman said early Monday.

The tentative deal emerged after fraught negotiations between President Nicos Anastasiades and heads of the EU, the European Central Bank and the International Monetary Fund — hours before a deadline to avert a collapse of the banking system.

The draft proposal, which still has to be approved by eurozone finance ministers, would save the Mediterranean island from financial meltdown by winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros ($130,000) to the Bank of Cyprus to create a “good bank.”

Deposits above 100,000 euros, which under EU law are not guaranteed, would be frozen and used to resolve debts, and Laiki would effectively be shuttered. The EU spokesman said no levy would be imposed on any deposits in Cypriot banks.

A senior source involved in the talks said Anastasiades had threatened to resign at one stage if he was pushed too far. A first attempt at a deal collapsed last week when the Cypriot parliament rejected a proposed levy on all deposits.

EU diplomats said the president, flown to Brussels in a private jet chartered by the European Commission, had fought to preserve the country's business model as an offshore financial center drawing huge sums from wealthy Russians and Britons.

The key issues in dispute were how Cyprus would raise 5.8 billion euros from its banking sector toward its financial rescue and how to restructure the outsized banks.

The speaker of the Cypriot parliament, Yiannakis Omirou, told reporters in Nicosia that a bailout deal was “taking shape.”

The EU's economic affairs chief Olli Rehn said earlier that there were no good options but “only hard choices left” for the latest casualty of the eurozone crisis.

With banks closed for the last week, the Central Bank of Cyprus imposed a 100 euros daily limit on withdrawals from cash machines at the two biggest banks to avert a run.

French Finance Minister Pierre Moscovici rejected charges that the EU had brought Cypriots to their knees, saying it was the island's offshore business model that had failed.

“To all those who say that we are strangling an entire people ... Cyprus is a casino economy that was on the brink of bankruptcy,” he told Canal Plus television.

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