2013-03-16 10:38 EU News – Eurogroup reaches deal on 10bln euros aid to Cyprus
March 16, 2013 10:38 am
After marathon talks at the Eurogroup meeting in Brussels that began on Friday, EU finance ministers reached a deal in early hours on Saturday morning on a bailout for Cyprus, the fifth euro zone member to require financial aid.
International lenders agreed on a 10 billion euro aid package to help restructure the banking system that has been hit hard by the restructuring of Greek government debt last year.
The IMF is expected to contribute to the rescue as well, said the fund’s Managing Director Christine Lagarde who also attended the Eurogroup meeting. Roughly 1 billion euros is expected to be contributed.
An initial assessment of Cyprus’s finances in January concluded it required more than 17 billion euros in aid, including 10 billion euros just to stabilize its banks. This amount was deemed to be unsustainable for the small island nation, whose annual economic output (GDP) is less than 18 billion euros and shrinking.
This is why at the Eurogroup meeting last night, it was decided that another 5.8 billion euros will be raised from taxes on deposits in Cyprus banks. Therefore, depositors in Cypriot banks will be hit with a one-off tax on their savings deposits, paying a one-time 9.9 per cent tax on all deposits over 100,000 euros, and a 6.75 per cent tax on deposits below that level.
In addition to the rescue loan, Cyprus agreed to increase its corporate tax rate by 2.5 percentage points to 12.5 percent, with the aim of boosting revenues and limiting the size of the loan and also to keep down public debt.
Cyprus only accounts for 0.2 percent of the euro zone’s economy but without a rescue, Cyprus would default and send shockwaves to the rest of the region, threatening to shake investor confidence in the euro zone.
This would “pose a risk of undoing the progress that has been painstakingly made over the past year’” said Olli Rehn, the European Union’s economic affairs commissioner, referring to European Central Bank President Mario Draghi’s infamous words when he pledged back in July that he will do “whatever it takes” to shore up the euro zone economy and protect it from collapse. “Cyprus is of systemic relevance to the euro area,” Olli Rehn said.
Meanwhile, Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting said, “This is a special situation, with a very specific banking sector, with a very specific structure and size, which calls for this specific package.”
After marathon talks at the Eurogroup meeting in Brussels that began on Friday, EU finance ministers reached a deal in early hours on Saturday morning on a bailout for Cyprus, the fifth euro zone member to require financial aid.
International lenders agreed on a 10 billion euro aid package to help restructure the banking system that has been hit hard by the restructuring of Greek government debt last year.
The IMF is expected to contribute to the rescue as well, said the fund’s Managing Director Christine Lagarde who also attended the Eurogroup meeting. Roughly 1 billion euros is expected to be contributed.
An initial assessment of Cyprus’s finances in January concluded it required more than 17 billion euros in aid, including 10 billion euros just to stabilize its banks. This amount was deemed to be unsustainable for the small island nation, whose annual economic output (GDP) is less than 18 billion euros and shrinking.
This is why at the Eurogroup meeting last night, it was decided that another 5.8 billion euros will be raised from taxes on deposits in Cyprus banks. Therefore, depositors in Cypriot banks will be hit with a one-off tax on their savings deposits, paying a one-time 9.9 per cent tax on all deposits over 100,000 euros, and a 6.75 per cent tax on deposits below that level.
In addition to the rescue loan, Cyprus agreed to increase its corporate tax rate by 2.5 percentage points to 12.5 percent, with the aim of boosting revenues and limiting the size of the loan and also to keep down public debt.
Cyprus only accounts for 0.2 percent of the euro zone’s economy but without a rescue, Cyprus would default and send shockwaves to the rest of the region, threatening to shake investor confidence in the euro zone.
This would “pose a risk of undoing the progress that has been painstakingly made over the past year’” said Olli Rehn, the European Union’s economic affairs commissioner, referring to European Central Bank President Mario Draghi’s infamous words when he pledged back in July that he will do “whatever it takes” to shore up the euro zone economy and protect it from collapse. “Cyprus is of systemic relevance to the euro area,” Olli Rehn said.
Meanwhile, Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting said, “This is a special situation, with a very specific banking sector, with a very specific structure and size, which calls for this specific package.”
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