A last minute deal for Cyprus has prevented the country from falling in to financial ruin. Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalise Bank of Cyprus through a deposit/equity conversion.
Under the plan, Cyprus’ second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euro (£85,000) will have to take losses
Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), made the following statement today after discussions at the Eurogroup meeting on Cyprus:
“The agreement reached today on Cyprus provides a comprehensive and credible plan to deal with the current economic challenges in the country. The plan focuses on dealing with the two problem banks and fully protecting insured deposits in all banks. It addresses upfront the core problem of the banking system through a clear strategy that ensures debt sustainability and does not excessively burden the Cypriot taxpayer. This agreement provides the basis for restoring trust in the banking system, which is key to supporting growth.
“We believe the plan provides a durable and fully financed solution to the underlying problems facing Cyprus and places it on a sustainable path to recovery. The staff teams of the IMF and the European partners currently in Cyprus will now work to complete the technical details. Based on this and final agreement of the mission in Cyprus, I expect to make a recommendation regarding potential financial support from the IMF to the Executive Board in coming weeks.”