In order to recapitalise its banks, Cyprus, is to receive a €10 billion bailout from the Troika.
A further €7 -7.5 billion must be found from privatisations of the Semi Governmental Organisations (Cyta, EAC, Ports Authority etc) and the rest, estimated at €5.8 billion, through an immediate levy of bank deposits. The Russian loan due to be repaid in 2014 will be extended to 2021 and the current interest rate of 4.5% reduced to 2.5%. Newly-elected conservative President Nikos Anastasiades’ government agreed to the harsh conditions, set by officials of the Eurozone because “much more money could have been lost in a bankruptcy of the banking system or indeed the country.” (M Sarris Finance Minister) The agreement is subject to final ratification by the House of Representatives, the country’s Parliament; the vote is due to held at an Emergency meeting on Saturday16th March. It is believed that the bank deposit tax will reduce the severity of the austerity measures required.
€10 billion bailout from EU, IMF and International lenders
€7-7.5 billion from privitisation and increase in corporation tax
€5.9 billion from “levy/tax” on Cypriot bank deposits
The immediate cost
With immediate effect Bank depositors will pay:
Deposits in excess of €100,000, 9.9% “one off levy”
Deposits below €100,000, 6.75% “capital tax”
Junior Bond holders will have a reduction in Capital
Depositors and Bond holders may receive bank shares in return for the levy
Interest on deposits to increase to 20% -25%
Corporation tax to increase to 12.5%
Capital Gains tax to be introduced
Banks to reduce their total operating size to EU average of 3.5% of GDP
The authorities have prohibited cash withdrawals and Internet transfers are prohibited from Cyprus banks until 19th March.
Terms and conditions are yet to be announced
Cyprus has become the Cyprus becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help in the wake of the region’s debt crisis. Cyprus has been forced to seek emergency aid from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB). In 2012 Cyprus was cut off from international lenders following reductions in its creditworthiness due to the collapse of the Greek Economy. Cyprus was heavily exposed to Greek debt particularly through its main banks, Bank of Cyprus and Laiki. In 2012 Cyprus saw a 2.4% fall in GDP, pushing the country well into a recession. Unemployment rose to 12% and is predicted to rise to 14% by 2014. Cyprus current national debt is 85% of GDP and is predicted to rise to 100% of GDP by 2020.
St. John Coombes